Bunge Global SA (BG) 2012 Q4 法說會逐字稿

Welcome to the fourth quarter 2012 Bunge earnings conference call. My name is Ellen 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, Investor Relations. Mr. Haden, you may begin.

Thank you, Ellen. Thank you, everyone, for join us this morning. Welcome to Bunge Limited fourth quarter 2012 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 section of 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 section.

I would like to direct you to slide 2 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; Drew Burke, Bunge's Chief Financial Officer; and Soren Schroder, CEO of Bunge North America. I will now turn the call over to Alberto.

Good morning, everyone. Let me start by addressing the news of our leadership transition which we announced this morning and is effective on June 1. I will then provide some insight into our results. Drew will provide details on the notable items, the quarter and our outlook, then Soren will say a few words, and we will transition to Q&A.

This transition is a very positive step for Bunge. In Soren, we have a great leader who has built a track record of success and various roles within Bunge. He helped build our global marketing and trading unit, established our agribusiness franchise in Europe and the Middle East, and since 2010, led one of our largest operating companies, Bunge North America. In this role, he has overseen the full breadth of our oilseed and grain valuation chains. In addition, he has deep understanding of our industry, markets, and customers. He lives our business having spent his entire professional life in it. For all of these reasons, he has my full confidence and that of the Board. Soren's selection is the combination of a deliberate and thoughtful process. We have a robust and ongoing succession plan in process at Bunge for the CEO and other management positions.

The Board and I started working on this particular issue a couple of years ago and established a specific Board committee last year to manage the final steps. As part of the process, we have allowed the time and resources to ensure a smooth transition. For the next four months, I will continue as CEO and Soren will focus on running Bunge North America. During that time, Soren will gain exposure to additional parts of the business and meet with employees around the world. As investors, you will see more of him as well.

In the second half of the year, I will serve as Executive Chairman and then this role, my priority will be ensuring that Soren has what he needs to succeed. I will be there to provide support, input, and perspective. So in short, this is the right choice at the right time. That is true for Bunge and for me personally. 2013 is my 15th year as Chairman and CEO. That is a good number. It's a right time for me to move on and to hand the reins to the next generation of leaders in our Company.

Now let me touch upon the quarter and the year. As mentioned, 2012 ended weaker than we expected. But looking at the full-year, we had a record performance in agribusiness and very solid results in food & ingredients. We believe both of these businesses are very well-positioned for continued growth and (inaudible) returns. We are confident in the long-term potential of sugar bioenergy as well. Clearly, this business is not producing the results we expect or demand. Poor weather conditions and low Brazilian ethanol margins continue to be a challenge.

That said, we are making progress to realize the full earnings and returns -- potential of this business. Our primary goal is to lower unit production costs; increasing capacity utilization is a big part. Last year, we reached our planting target of nearly 70,000 hectares, which should allow us to operate at full capacity in 2013. We are making operational improvements to lower costs as well; this includes improving industrial, planting, and harvesting efficiency. Lastly, increases in yield. Both cane and ATR from the lower levels seen today throughout the industry will also benefit margins. In fact, I would like to remind that in 2011 and 2012, these yields, both tons per hectare and ATR, were the lowest in the last 20 years.

2012 was also a year in which we improved our portfolio. We took the important strategic step of agreeing to sell our Brazilian fertilizer business for $750 million. We will continue to provide fertilizer to farmers as part of our grain origination program. This will be a streamlined activity with lower-price risk that acts as a strong complement to our agribusiness operations. We also made important investments in key markets, including India, Mexico, and Africa, among others.

Looking to 2013, we see a robust agribusiness environment. Demand remains strong and farmers are working hard to rebuild stocks. Forecast calls for record harvests in and strong expert flows from South America. In this environment, we expect Bunge's SA work and team will provide compelling service to farmers and customers and produce strong results. We also expect a strong year in food & ingredients, building on the momentum of the latter half of 2012.

As you saw, the fourth quarter also contained several notable accounting adjustments. Drew will tell you about them in more detail, but let me make two points. First, the goodwill writedown in sugar & bioenergy is the result of our annual impairment test. It's a non-cash and does not change, in any way, our positive view of this business or its potential. Second, the charges in fertilizer are part of the divestiture of this business. We expect some offset later this year in addition to the cash gain when we close the transaction. I will now turn the call over to Drew who will provide greater detail on the quarter and our outlook.

Thank you, Alberto. Our results in the fourth quarter include non-cash, after-tax charges of $683 million. The major components of these charges are shown on slide 3. In our sugar and bioenergy business, we have recorded an after-tax goodwill impairment charge of $327 million as a result of our annual goodwill impairment tests and, according with US Generally Accepted Accounting Principles, which is based on the fair market value of the business on the test date.

At the test date, the sugar industry was under pressure from the effects of adverse weather and low ethanol margins, and merger and acquisition activity was low, making it difficult to benchmark business values. Given that, it was prudent to conduct a step two testing required by the accounting standard. That standard requires you to perform acquisition accounting based on the current fair value of your assets and liabilities. The replacement value of our assets has increased significantly so the calculation resulted in the impairment of our goodwill.

While the value of our agricultural and industrial assets has increased, we cannot recognize this increase in value of the assets for accounting purposes. We continue to believe in the future of our sugar and bioenergy business and our ability to create shareholder value. We have made the necessary investments in sugarcane planting to allow us to run the plants at full capacity. We continue to expand our production capabilities at our current facilities, increase our agricultural and industrial productivity, and invest in cogeneration. The recent policy and pricing moves in Brazil are supported through our business, and we believe pricing will continue to strengthen.

During the fourth quarter, we signed an agreement to sell our fertilizer business to Yara for $750 million. Accordingly, the results of our Brazilian fertilizer operation are shown as discontinued operations and the assets of that business are classified as assets held for sale. In the fourth quarter, we recorded two charges related to this business. We recorded evaluation allowance of $266 million on the deferred tax assets related to our net operating loss carry-forward as our ability to use the losses is uncertain because of our exit from the retail industry in Brazil. We also recorded a $32 million after-tax provision against our long-term farmer account receivables balance as we believe the sale of our business will negatively impact our ability to collect those amounts as many of these receivables are with farmers who grow crops that we do not handle in our agribusiness operations. We expect the transaction to close in mid- to late 2013 and we expect to record a gain on the sale.

During December 2012 and January 2013, we sold certain long-term tax and legal claims in Brazil for approximately $91 million in cash. When we [raked] into these sales, we recorded a loss in the fourth quarter of $73 million and we will record a gain of approximately $60 million in the first quarter of 2013.

Let's turn to page 4. Total segment EBIT for the quarter is a loss of $414 million. When you add back the impact of certain gains and charges, total segment EBIT was a profit of $149 million versus a prior year EBIT of $295 million. A complete list of the gains and charges is shown in the schedules attached to our press release. On a full-year basis, adjusted segment EBIT was $1.1 billion versus a prior year of $1.15 billion.

Agribusiness recorded in adjusted quarterly EBIT of $134 million versus $199 million in the prior year. Volumes in the quarter were slightly lower, reflecting the drought's impact on North American grain volumes and South American oilseed processing volumes. For the full year, our volumes increased 13%, primarily reflecting higher grain export volumes from the Black Sea region and our new terminal in the Pacific Northwest. North American oilseed processing had a strong quarter, but these results were offset by lower oilseed processing results in our European soft-seed and Asian businesses.

Our grain trading and merchandising business benefited from export programs out of South America and Eastern Europe. Our North American grains business performed slightly better than the prior year but came in below expectations due to lower export volumes and margins. In general, risk management performed below expectations in the quarter.

On a full-year basis, agribusiness reported a record adjusted EBIT of $1.038 billion. Full year's results were driven by strong performance in our grain and merchandising business as our full value chain approach worked well. Strong South American grain origination, coupled with the global distribution network, produced strong volumes and margins. Oilseed processing performed well in North and South America while soft-seed processing results in Europe were lower.

Sugar and bioenergy reported an adjusted EBIT loss of $49 million in the quarter versus a prior year EBIT profit of $3 million. The loss reflects the continuing impact of the weather on total recoverable sugars, and the fact that hydrous ethanol margins were negative in the quarter. Our sugar planting program for 2012 was successfully completed, and we plan to have sufficient cane available to crush at a full capacity in the 2013 crop year. Our productivity programs continue to achieve positive results, as shown by a 15% decline in our unit production costs during the fourth quarter. Results were also impacted by weakness in our trading and merchandising in North American ethanol businesses.

On a full-year basis, our sugar & bioenergy business recorded an adjusted EBIT loss of $118 million. This reflects the impact of reduced total recoverable sugars on our revenues and costs and depressed ethanol margins in our industrial business and low margins in our trading and merchandising business. We crushed approximately 17 million tons during the year versus our capacity of 21 million tons. As previously mentioned, we expect to have sufficient cane available to crush at our 21 million ton capacity next year.

Our food business reported an adjusted EBIT of $49 million. Within that result are provisions related to Brazil value-added taxes of $22 million. If you add that back, you come to a profit of $72 -- $71 million, which is in line with prior year and our expectations. Our edible oils and wheat milling businesses performed well in the quarter, while corn and rice milling results were below prior year.

On a year-to-date basis, our food & ingredients business reported an adjusted EBIT of $166 million versus a prior year of $235 million. The shortfall is primarily due to low results in Brazil in the first half of the year related to challenges within ERP system implementation that resulted in lost sales opportunities. Those issues are behind us and those businesses performed better in the second half. Our adjusted earnings per share for the quarter was $0.57 versus $1.80 in the prior year. On a full-year basis, adjusted earnings per share was $4.62 versus $5.96 in the prior year.

Let's turn to page 5 and the cash flow summary. Our cash flow provided by operating activities in the quarter was $2.4 billion comprised of funds from operations of $161 million and an inflow of $2.3 billion from changes in operating assets and liabilities. Funds from operations are primarily comprised of our net income, excluding the non-cash charges and appreciation and amortization. Change in operating assets and liabilities primarily reflects lower inventory levels and commodity prices.

On a full-year basis, cash used by operating activities was $455 million comprised of an inflow of $1.1 billion from funds from operations offset by an outflow of $1.6 billion from changes in operating assets and liabilities. The increase in operating assets and liabilities is mainly due to the increase in commodity prices between year-end 2011 and 2012. Our capital spending for 2012 was $1.1 billion and in line with our plan.

Let's turn to page 6 and the balance sheet. Our balance sheet and available liquidity remained strong. The working capital increase primarily reflects an increase in inventories due to higher commodity prices. The higher debt levels are primarily due to the higher working capital balances. At December 31, we have $3.4 billion of liquidity available under our committed credit facilities.

Let's turn to page 7 and the outlook for 2013. We expect a stronger performance in 2013. In agribusiness, the market is anticipating record crops in South America and they are needed to rebuild global supplies. A strong position in these markets, particularly our logistic important networks, should allow us to source increased volumes and distribute them through our global network. The main South American export season will be from March to September. After that time, new crop will become available in North America, and Europe and trade is expected to shift to these regions. As the new crop is harvested, we expect good South American oilseed prices in volumes and margins; both domestic and export demands should be strong. Near-term margins in North America are good but they will weaken as oilseeds supplies decline and the South American harvest commences. We expect stronger margins again in the latter part of the year with the arrival of the new crop.

In Europe, margins are mixed. Rapeseed margins have improved while sunseed margins have weakened. The Asian margins improved towards yearend and demand for mill is strong.

Please turn to page 8. In sugar & bioenergy, we expect to see significant improvement. Our 2012 planning program was successful, and we are now in a position to operate our plants at their full capacity of 21 million metric tons of cane. Our productivity improvement programs are yielding positive results. We should see a further 15% reduction in our unit costs in 2013. We expect to see continued productivity improvements into 2014. We also expect a total recoverable sugar in the cane to move back towards historical norms. This would have a positive impact on both revenues and cost.

The remaining headwind is the ethanol price and its impact on margins. On this front, we're encouraged by the recent developments in the Brazilian ethanol market. The blend rate of anhydrous ethanol into gasoline will increase from 20% to 25% on May 1. This should increase which demand for a profitable product and we have taken the necessary steps to be able to supply higher quantities. Additionally, the gasoline price in Brazil has increased approximately 6%. This results in increased ethanol prices and as a move towards bringing Brazilian gasoline prices in line with global gasoline prices. Given the above, we expect our sugar & bioenergy business to be solidly profitability in 2013. However, to achieve our target of $8 to $10 EBIT per ton of cane crush, we need to see prices increase to levels that reflect global gasoline parity on ethanol.

To summarize, we are continuing to accomplish the actions that are under our control. We're planning sufficient cane -- or have planted sufficient cane top-rated capacity. We're moving towards higher value products, we're increasing our productivity, and we're adding cogeneration capacity. Carrying these improvements through to 2014, along with a 10% to 15% increase in ethanol pricing, should enable us to achieve our financial targets. We would also like to note that the sugarcane milling business is seasonal and the profits will be weighted towards the second half of the year.

In food & ingredients, we expect a performance in the second half of 2012 to carry into 2013. Our underlying edible oils and milling businesses should perform well with increased contribution from our wheat milling acquisition in Mexico and our edible oils acquisition in India. Additionally, we will be starting up a new multi-oil refining facility in India, and a new refining and packaging facility in Alabama. We will be also starting up our crushing and refining facility in Altona, Canada, which will benefit both our food and agribusiness operations. We will have continuing operations in fertilizer combined of our Argentine fertilizer business, our port operation in Brazil, and our Moroccan joint venture. We expect these businesses to be profitable.

Turning to page 9, we would like to note that we expect 2013 depreciation, depletion, and amortization to be $575 million; our full-year tax rate to be between 17% and 20%; and capital expenditures of $1.2 billion. I would now like to turn the call over to Soren for a few words.

Thank you, Drew. As Alberto summed up well, we're optimistic about our performance going forward, and he and I are committed to working together for a smooth transition. It's truly an honor to be selected as the next CEO of Bunge. I approach the job with great humility and optimism. Our future is bright, and we have a lot of work to do. Fortunately, I will have the benefit of an outstanding global management team and the dedication of 35,000 Bunge employees around the world.

However, with Alberto, it requires stepping into big shoes and it is also a great opportunity. In his 20 years at Bunge, first as CFO and then as Chairman and CEO, he's literally transformed the Company. When he started, Bunge was a regional conglomerate and today, we're a leading global, focused ag and food company with a unique culture and an approach that has (inaudible) [prospered]. This was no small feat.

It required [dedication], determination, judgement, and great leadership, all of which Alberto has in quality and was the reason why I was attracted to Bunge when I joined 13 years ago. So we stand on a solid foundation with an excellent team, leading positions in key markets and a strong financial situation. I look forward to building on that foundation and guiding Bunge to its next era of growth and success. So, Mark, with that, will you take us through the Q&A?

Yes, Ellen, could you please open the phones to questions?

Thank you.

(Operator Instructions)

Ryan Oksenhendler with Bank of America Merrill Lynch.

Could we talk about what happened in the quarter in agribusiness? Just starting on the oilseed side, on the processing side, you stated in the prepared remarks that North America and South America were offset by lower Asia and Europe processing results. When I look at your capacity, North America and South America dwarf Asia and Europe. When I look at the margins in North America, particularly, that you had $0.80 crushed margins versus $0.40 a year ago, you had the highest utilization rates in years. What happened there that the profitability wasn't that much better?

I would say that Europe and Asia is relevant; it's probably 40% of our processing capacity now. We have been expanding it. We had particularly issues in one or two areas, and in rapeseed, we had some issues, especially in Germany and also on sunseed in Eastern Europe. China was tough at the end of the quarter and improved. It improved but overall, the comparison versus last year versus '11 was negative. In South America, obviously, it's the end of the season, so it's comparable to the way we performed in '11. So, in North America, we have, more or less, 35% of our processing is North America; that was not enough to make the big jump that we needed.

Okay. Then on the risk management side, where you said that the strategy there was not as profitable as expected. Could you be a little more specific with something -- dealing with logistics with the Mississippi? Were you buying beans over the summer before you saw the crop come in bigger than expected? Can you give us a little bit more detail around that and whether or not any of those issues will impact or flow into the first half of the year?

Look, first of all, what happened in the fourth quarter stays in the fourth quarter. So it was a reasonable quarter but it was not as good as we hoped. Let's not forget it was a record year in agribusiness. Now what did not work so well for us was that we -- similar to what we did in South America, we geared up ourselves for a very tight situation, very tight market in North America, but it ended up not being so tight.

So we probably had more inventory and more positioning that did not work so well. So, but that's part of our business. I feel very good about it, the way we had performed a record year and from time to time, we will not get it perfectly. It has absolutely nothing to do with '13. '13, we look at extremely positive.

Ken Zaslow with Bank of Montreal.

So, how much was the risk management loss?

It was not a loss. It was, obviously, we have a very large infrastructure and we have a lot of costs. But we did not generate the margins that we expected to generate.

Okay. Could you put some context on what you would have generated if you were on the --?

We (multiple speakers) --

Give us some context to it?

It's very difficult to say. It's very difficult to say. We thought it would be a much stronger one. I think also in addition, we probably had a little bit more trouble with the grain business. We have to remember that farmers -- as prices started to come down, farmers were more reluctant sellers so margins were squeezed as well. There were also some logistic issues. So, not everything worked that well.

Okay. Then can you talk about the outlook for each of the regions on the crushed margins? Like which one -- where do you think there would be the greatest improvement in margins throughout the year? Where would you think that there might be a little bit more risk to the margin structure going forward?

We believe that we will see an improvement. The South American crush margins should be very strong. We're looking at a very, very large crop, and we think that we are very well-positioned. We also expect a very strong fourth quarter this year in the Northern Hemisphere. We believe that we will see a better soft-seed crop in Europe. So overall, we look at a positive environment. The first quarter will be a little bit softer because, obviously, it's the end of the North American season and, at the same time, we also see improvement in the processing margins in Asia.

Okay. In terms of the sugar business, what exactly are we rooting for in terms of do we want a big crop so we have a lot of volume or do you want a smaller crop so you actually have higher prices? If you can tie that in -- I don't know, Soren, if you actually want to comment on your position on the sugar business. (multiple speakers) clear but your position is over time because it seems like this business is abundantly struggling every year.

I would not see it like that, Ken, because you have to remember a couple of things. First, let's deal with what we can deal with internally, and that is, get the costs right. So, we have reduced in '12 the costs already, the unit costs by 15%. This year, we will reduce it another 15%. Next year in '14, something 5% to 10%. So, we can -- more than 50% of the issues we have to get to our targets, we can solve it internally.

If you have two years in a row, '11, '12, with the lowest yields in tons per hectare, and sugar content in 20 years, it's very tough to get the volumes through your plans. Therefore, we can't utilize our capacity. So in addition, just think about if we run at capacity, this -- we're talking about 3 million to 4 million tons more processing of sugarcane at a contribution of 40 million tons, it gives you an idea. It is not possible to make money in an environment when you are not running close to capacity. So we have to see this year. This year will be key. Obviously, we're optimistic. Having said that, it is obviously also important that prices are right.

So we know that the -- as Drew mentioned, ethanol prices are below what they need to be, especially hydrous. Now we have increased our anhydrous production this year by 60%, so nearly 50% of our ethanol will be anhydrous. That's profitable Sugar also needs to be a little bit higher. So that is why we have this excess production, especially adding from Asia and maybe should -- we expect that during the year, we should slowly see a reduction in inventory. Therefore, prices should also come up in sugar. Therefore, we need a more -- when you look at it all -- when you put it all together, we will get to our target margins mostly by reducing our own costs but we do need some 15% higher prices in ethanol. Soren, you want to add one comment?

I am optimistic about 2013. I confirm what you said. It's the first year, really, in the last two or three and we have a chance to prove that our asset footprint in Brazil with a good crop can yield results. Several factors are moving in the right direction.

David Driscoll with Citi Research.

I want to touch on a few points. You've already commented a little bit on this, but Alberto, first you said, maybe I'd take a little bit of an issue with your comment that you thought the quarter was reasonable. Given the set up for the quarter and given your comments back in October, now I feel this quarter was a flat-out disappointment, relative to the Bunge that I have known since you came public and the risk management seems to be the issue. While I agree with your comment on the full-year basis that it did well, but I, looking at [ADMs] and cargo results, the results from Bunge today are much, much weaker in agribusiness than anything we would have thought.

Again, just going back to your own comments in October, I don't -- it doesn't seem to me like it's reasonable to point that at crushing margins in other regions, that it's got to be risk management that was the culprit. I would like you to make a comment on that one and then critically, just talk about how that then affects 2013. Because so many people who invest in your stock, they get so worried about this risk management issue and that from one quarter to the next, people have a hard time having any visibility on it. So I really think you need to provide some comfort and context around what this means for '13. Thank you.

Perhaps, the comment about crushing was not precise from my side. on oil [PD] -- on oilseed processing, we did better in '12 than we did in '11. So I was just qualifying that we did not do much better because we have a large footprint in Asia and South America didn't contribute much, and we had some issues in Europe. But overall, oilseed processing was better. The areas where we did not do well and I agree with you, Dave. It was not a good quarter in agribusiness. It was in grains in North America because of the issues of the crop, but also in risk management.

Now having said that, I am very, very proud and very comfortable with the way we approach it. Our risk management has shown over the years, over the last six years, it is rock solid. Now, you can't get it always right. There are so many moving pieces. We're talking with weather. You are talking about all different things. We got it absolutely right in South America. So when you look at on average on the year, we did well. It was a record year. The quarter, okay, I am also upset. It was not what it was supposed to be.

Then can you make that comment there about 2013, the implications from the fourth quarter rolling into '13? Do you have visibility that your risk management strategies are going to -- already right now here in February, they are already back on track and producing the results that we would otherwise expect from the very tight crop environment?

Absolutely. I think this issue was more related with the month of October and I feel very, very comfortable. This is in the quarter, stays in the quarter. I think the way we are looking at 2013 is, as we said it in different ways, we look at it very optimistically.

Thank you for the time. One more question, if I may, very important. Can -- Drew, can you comment on your ability to achieve your cost of capital in 2013 given the environment as you've laid it out for us? That is always helpful and you've often, in the past, made those comments. Can you update us?

I would be happy to, Dave. I think when you look at our agriculture -- agri business and foods, and look at those two, it would be above cost of capital. I think yet in '13, sugar will not be at a point where it's above cost of capital and that will probably take out to 2015 to get there at our current projections. So we see a steady ramp-up towards cost of capital for sugar but not yet in '13.

So given the size of sugar versus all of the other two businesses, it would sound to me like then the whole entire business is right there, right at cost of capital.

Yes, it's right around cost of capital.

Diane Geissler with CLSA.

Congratulations, Soren and Alberto. We will probably miss you more than you will miss us, but good luck.

Thank you. (laughter)

I wanted to ask on sugar and your comments about -- to reach your normalized range of $8 to $10 a ton. You've really needed to see a little bit more pricing coming from the gasoline market. I am assuming that's the ethanol market. Can you talk a little bit about, if prices stay where they are today, and I appreciate we'll see an increase in run rates in May. But if things stayed where they are today, where do you think that margin would come out for 2013 based on your expectations of 21 million metric tons.

Then also on the sugar business, could you comment a little bit about your expectations? You replanted a lot this past year and the year before. Agronomically, what are you doing with your current acreage base and are you increasing that for 2014? I am just trying to get an idea of where that business goes from a volume perspective over the next couple of years. Thanks.

Okay. In terms of what we need in terms of pricing today, hydrous ethanol, which is 50% of the ethanol we sell, is negative. So what we need is that the gasoline prices in Brazil go up. They don't need to go all the way to international parity, but they need to probably go up something like 15% to 20% hydrous. Anhydrous is okay. Obviously, cogeneration is okay. Sugar prices need to be a little bit higher as we expect them to go to get to our target margins, but the real issue is hydrous margin. What we are doing is, obviously, all what we can to reduce our unit cost and we mentioned 15% last year, 15% this year and 5% to 10% next year. So more than 50% of the problem we will solve ourselves but we will need to get to the target margins.

We need an uplift from the gasoline prices, and therefore, also the hydrous ethanol prices. Now what is happening is that in brazil is that the industry is shifting to sugar and shifting to anhydrous and exporting. Brazil exported 3 billion liters last year so who is taking the burden of solving the problem in Brazil is Petrobras. You have been seeing the losses they are taking because there's -- the millers are not producing more hydrous ethanol and there's less and less. Petrobras has to import more and more gasoline. They're losing probably something like $0.20 per liter on each of these transactions. So I think it is very clear to the Brazilian government now that it is in the interest of Petrobras of the country that we need higher prices to solve this gap.

Brazil probably needs something like 20 billion to 30 billion liters until 2020, and that is going to be served either through hydrous and anhydrous ethanol or it will be import gasoline. So the situation is pretty clear of which direction to go and we see very clear signs that the government is going in the direction of allowing the prices to go up. So, we are reasonably optimistic. This change was a mandate to May 1, to anhydrous, the increase in gasoline prices are all indications already.

Regarding the planting is, the heavy lifting is done. So with the 17,000 hectares that we planted in '12, the catch-up is done. So we will obviously have to continue improving it. So this year's program is 60,000 hectares planting so we will need to invest less money in '13. What we want to do is always have something like 10% more than what we need in case of weather issues that normally happen. So from now on, the increase in planting will be in line with our expansions of our mills. So, we have learned our lesson. We will do first the planting and then expand the mills.

Okay. So just on the normalized margin then on a per-ton basis, if you don't get the pricing this year, where do -- how much below the low-end of the normalized range do you think you might be?

Drew, come to the rescue.

I think that -- we have gone through this the last couple of years. We learned that there's a lot of variability in that number, depending on weather and what happens in the pricing environment. We will have a very clear -- or not a very clear, but a much clearer view on the crop and the quality of the crop as far as the sugar content. In the spring, when we start to run the plants again, and I think we would rather wait to that time before we would give a precise estimate. I think what we would say today is, we do expect to be profitable but we won't get to the $8 a ton.

Okay, great. Thank you.

Diane, also for the first time, you can see the weather has been right for the last couple of months. So after so many -- we had probably 24 months where everything was wrong but the last six months have been -- the weather has been right.

Ann Duignan with JPMorgan.

Can you address the logistics and port issues that you might anticipate given the record crop we anticipate in Brazil and other regions? Is there any risk that we have a record crop but can't get it to market?

I think there will be issues. The crop is going to be a record crop. We believe there will be issues both in ports and on the rails, but also especially in the inland logistic and will create some issues. Let me tell you we feel quite strong the way we have positioned ourselves. Remember that Bunge, we have no origination program and logistics program, and merchandising program that is larger than the second and third competitors combined. We have done a lot in our ports.

We operate 11 terminals in 8 ports. We have made -- prepared ourselves for this year with expansion in storage, inland storage. We have worked very hard to improve efficiencies in the ports and have -- we hope we have the right contracts. I think this is a little bit of a situation. There will be trouble, and unfortunately, who pays for the trouble normally is the farmer. But it's also a question of how well you are prepared vis-a-vis the rest of the industry. We have focused all of our attentions to get it right.

If you had to rank trucking, rail, or port, rank order where you see the biggest risk, would it be on the trucking side just getting the crop to the port or do you think the bigger risk is actually getting the crop out of the port?

The trucking is the biggest risk. That is also one of the reasons we have expanded our storage, which means that first, we want to get it to the storage and let the peak freight rates of the harvest pass and then at lower rates, move it to the ports.

Okay. Then as a follow-up, could you address -- you noted that you had some problems with rapeseed in Germany. Was that related to the European Union's change in biofuel standards or was it just a once-off, if you could just give us something --

No, It is much more localized issue, size of crop, margins, it is -- that was the issue. It's much more localized competition.

Do you expect that to improve going forward or is that the --

Yes. We expect '13 to be better both in sunseed and in rapeseed. The whole soft-seed sector should be better in Europe.

Tim Tiberio with Miller Tabak.

Last quarter, Alberto, you had stated that you didn't think that low palm oil prices would have much of an impact across the overall oilseed complex. I am just wondering based on your comments around some of the under-performance in Asia, whether that developed the opposite direction over the last few months? Is that some of the problem there or is there something else going on that we should be aware of?

The issue in Asia is that we have excess capacity, processing capacity in China, so the margins have been tight. We have -- that was the issue in the fourth quarter, so, we have, in previous quarters, we have sailed relatively well through it because of our extremely well-located plants and right size and low costs. But we were not immune in the fourth quarter. Now margins have improved at the end of the quarter but it's not related to palm oil. It's really a competition, over-capacity situation in China.

Okay. As far as corn supply right now in Brazil, how is that looking towards the end of the current season? Is availability really tightening up from your perspective?

We are in the middle of the crop and soon we will have the softening of the winter crop. So I think we are going to see very, very large harvest in South America, especially in Brazil.

Robert Moskow with Credit Suisse.

Best wishes to you, Alberto. I have enjoyed working with you over the years.

Thanks, Rob.

You're welcome. I did want to ask you, though, about your comment on risk management. You said that, over the last six years, you think risk management has been rock solid. We tend to put a lot of focus on the missteps more than the successes. I just wanted to know, what process do you have internally to go back and see the decisions that were made, what was the rationale for making them? And then maybe comparing versus your peers, over those six years, here's how we did versus our peers?

I feel very, very comfortable, Rob, how we compare vis-a-vis the competition. Now you have to look at it always on an annual basis because there are so many moving parts. These are millions and millions of contracts, there are millions of tons that are moved and all the time, there -- things change. Look, I think we all came in, including the [FDA] with a view how the harvest would be but we were surprised at how much better it was, and especially in soybeans that we thought it would be. So I think we have an extremely robust process internally of how we do this and how we look at it; very strong research, very -- a lot of significant. This is extremely institutionalized.

We are nearly 200 years old and we have been doing this for a long period of time. So I feel very strong about it. When you look at our volatility of our earnings in agribusiness, and over the last six years, it is not a lot. You have sometimes quarters where you don't get it exactly right, but I feel very good about it the whole year, and I feel also very good about the whole team. Now have we made a mistake? Yes. Have can we learned from it? Yes. Are we going to get -- come stronger out of it? Yes. So I hate to see the way we did it in the fourth quarter, but I feel very good about next year, about '13.

I appreciate the comments. Just a question on the balance sheet. Debt levels are over $1 billion higher than they were last year. I imagine that's partly due to readily marketable inventory being higher as well. Can we expect 2013, all else being equal, to be a positive cash flow year?

The tricky part of your question, Rob, is all other things being equal. If all other things are being equal, we will have a little bit of business growth. So some of our balances would go up and I would think our earnings growth would offset it. So I think your comment is fair.

The problem is we're very influenced both by what commodity prices are and what the structure of pricing is in the commodity market, how much of a carry or an inverse you may have in the market. But if we assume that's all the same, I think your comment is very fair there that it would be positive. That's what we plan for. We plan actually for neutral cash flow after investing.

Drew, the cash would go towards debt reduction, the excess cash if there is some?

If it's in the case of us bringing up working capital, that's what we do. Do it but yes. Separately, we look at new investments we want to make but it is not driven by changes and commodity prices and those shifts in working capital levels and debt levels. How much we feel we have for investment would be determined based on our long-term outlook for cash flows and our overall balance sheet position.

Giovanna Araujo from Itau BBA.

My first question was about logistics; Alberto already addressed it perfectly well. So my second question is about risk management. So basically I would like, if you can comment, Alberto, the -- how challenging is it to do the risk management if the market is more in the spot basis and how challenging is it to do the risk management in a market with -- that is no longer in a carry situation?

I would say in the spot market, there is no risk management, but -- because you buy and sell. But overall, doesn't matter if it's in the carry or inverse risk management. That is exactly the science to manage it correctly so that we serve our customers right, get the volumes, continue growing and make money. That is exactly what we know how to do and so we don't mind if it is -- how the structure is of the futures. Also, if it's a large crop or food crop, obviously, you saw we got it right in the South American crop. We didn't get it so right in the Northern Hemisphere crop but in that year, we did very well. It was a record year.

That is all the time we have for questions today. I would now like to turn the call back over to Mark Haden for closing remarks.

Great, thank you, Ellen and thank you everyone for joining us this morning.

Thank you, ladies and gentlemen. This concludes the fourth quarter 2012 Bunge earnings conference call. Thank you for participating. You may now disconnect.