Bunge Global SA (BG) 2013 Q3 法說會逐字稿

Welcome to the third-quarter 2013 Bunge earnings conference call. My name is Christine 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 would now like to turn the call over to Mr. Mark Haden, Director of Investor Relations. You may begin.

Thank you, Christine, and thank you, everyone, for joining us this morning.

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 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 investors section.

I'd 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 the 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 Soren Schroder, Chief Executive Officer, and Drew Burke, Chief Financial Officer. I will now turn the call over to Soren.

Thank you, Mark, and good morning to everyone.

We had some good performances in the third quarter. In agribusiness, we served global customers well, by leveraging our South American asset network during a period of short northern hemisphere supplies. Logistics in Brazil were challenging, but our team managed them well. We also navigated a complex global risk environment with skill.

Large North American crops and the prospect for a record soybean harvest in South America next spring are driving a transition in the oilseed and corn markets from very steep inverses to a period where stock building is likely. Demand is strong, and will be stimulated by a more modest price environment.

Food and ingredients continued to perform well and is on the path for a record year. We're improving how we work in foods and feel strongly that our base business can be expanded and improved further.

The linkage between agribusiness and foods in Bunge is strong and very important to our customers and our profitability. Both segments should have a good fourth quarter and produce returns above cost of capital in 2013.

In sugar and bioenergy, we face a more challenging situation. Our global sugar and ethanol trading and merchandising team is performing well, and over the last few years, we have built a leading global franchise in the same spirit as we have in agribusiness. The risk management capability is strong, as is value chain and customer focus.

Our Brazilian sugarcane milling operations, however, continue to be challenged. Excessive rains have hurt ATR and limited crush, and capped ethanol prices limit the ability to compensate for the reduced output. These conditions make it difficult for the milling sector to generate consistent profit and appropriate returns.

As a result, we have reduced the sugar and bioenergy segment outlook for the fourth quarter and full year.

The combination of weather-related risk and capped ethanol prices means that the cane miller is assuming significant and uncontrollable risk with no compensation in margins. Given the structural challenges facing the Brazilian industry, we will also review strategic alternatives in order to optimize the value of the milling business.

Going forward, we will manage the milling business to be free cash flow positive, with reinvestment dedicated to agricultural and industrial maintenance and efficiency projects only. These efforts are essential to improving our performance.

Our overall focus is to improve Bunge's return to above cost of capital, while preserving our strong global market position. We are there in agribusiness and food, and as a firm, we are very close. Our target remains to reach WACC plus 2 in 2015.

And the levers are clear -- improved asset utilization and logistics management, cost control, operational efficiency, and a strong discipline on working capital. The rollout of the globally coordinated performance management process is taking place now and will gather strength over the next year. As we get further into the program, we will share the results with you.

CapEx discipline is another important part of improving returns. We have reduced CapEx for the next year to $900 million, down from $1 billion this year. We believe this level will let us strike a good balance amongst higher-yielding projects, productivity and maintenance, as well as filling in gaps in our global agri-food network. We will assess all capital allocations, whether strengthening our balance sheet, reinvesting in the business, doing M&A, or returning capital to shareholders, with an eye towards maximum value creation.

The acquisition of Grupo Altex wheat mills in Mexico, which we announced yesterday, is a perfect example of how we would like to grow. The transaction expands our profitable North American milling business and complements our previous acquisition of La Espiga. The Altex mills provide a strong national market presence, an important customer base that we look forward to serving. We will continue to grow our downstream food and ingredient businesses in growth markets where they have strong ties with agribusiness.

Bunge has many strengths that give us confidence in our long-term ability to generate value for shareholders -- a unique global footprint; a proven value chain approach to managing risk, margins, and serving customers; an excellent team; and a downstream business with plenty of room for growth.

Now, I will turn the call over to Drew, who will provide greater detail on the quarter, our outlook, and our capital allocation priorities. Drew?

Thank you, Soren. Let's turn to page 3 in the earnings highlights.

Total segment adjusted EBIT was $404 million. Strong performance in agribusiness and food and ingredients were offset by a below-expectation performance in sugar and bioenergy.

Agribusiness adjusted EBIT was $335 million versus the record third-quarter adjusted EBIT of $406 million achieved in the prior year.

Our Brazilian processing and merchandising businesses were the primary driver of results in the quarter, as we were able to take advantage of our strong asset and logistic networks in the country and our global supply chain and distribution capabilities. In Argentina, an improvement in oilseed processing results was offset by lower merchandising results, due to the poor wheat crop.

North American results continued to be negatively impacted by low crop availability, due to last year's drought, and were the main reason for the [shore up were up] versus prior year.

Results in Europe and Asia were similar to last year.

Year-to-date adjusted EBIT is $680 million versus the prior year of $904 million, primarily due to the impact of small crops on our northern hemisphere businesses and reduced merchandising opportunities in Argentina.

Our sugar and bioenergy business incurred an adjusted EBIT loss of $19 million versus a loss of $8 million in the prior year, as improvements in our trading and merchandising business were offset by a decline in our Brazilian sugar milling business.

The loss incurred in our milling business was well below our expectation of a solidly profitable quarter. This was caused by two primary factors -- a decrease in the sucrose content in the cane and a reduction in our crushing volumes, caused by more rain days than anticipated. We have accomplished our goals of increasing cane availability to our industrial capacity level and increasing our productivity, although this has been somewhat offset by wage inflation.

Given the anticipated loss in our sugarcane milling business in 2013 and a reduction of our 2014 forecast, we are taking a full valuation allowance of $521 million against our deferred tax assets related to our Brazilian sugar business. This is reflected in income tax expense in the third quarter.

Our food and ingredients businesses had an adjusted EBIT of $73 million versus $59 million in the prior year, driven by strong performances in our edible oils and wheat milling businesses. Lower edible oil results in Brazil and the United States were offset by stronger results in Europe, Canada, and Asia, which benefited from cost-reduction programs, improved category innovation, and higher margins.

Both our Brazilian and Mexican wheat milling businesses performed well, driven by lower industrial costs and higher margins that resulted from successful raw material procurement strategies in a tight Brazilian market. Core milling results were below prior year, in part due to softer volumes as customers delayed purchases in anticipation of the new corn crop.

On a year-to-date basis, adjusted EBIT is $195 million versus $117 million in the prior year, primarily due to higher results in both edible oils and wheat milling in Brazil and the contribution of our Mexican wheat milling business where we acquired controlling interest in 2012.

Continuing, fertilizer adjusted EBIT was $15 million versus $22 million in the prior year, as a higher performance in our Brazilian fertilizer port was offset by lower results in our Argentine fertilizer business, due to lower volumes from smaller corn and wheat plantings. On a year-to-date basis, fertilizer results improved from $17 million to $27 million, due to increased profitability of our Bunge -- of our Brazilian fertilizer port and elimination of the loss in our Moroccan joint venture.

During the quarter, we closed the sale of our Brazilian fertilizer distribution business to Yara for $750 million.

Adjusted net income per common share from continuing operations was $2.05 versus $2.07 in the prior year. On a year-to-date basis, adjusted net income per share was $3.92.

Let's turn to page 4 and the cash flow statement. Cash flow provided by operations was $903 million in the quarter versus a cash outflow of $2.9 billion in the prior year. This variance primarily reflects lower commodity prices and our continued focus on optimizing working capital usage.

Our liquidity position remains strong, as we had $3.7 billion of available and unused committed credit facilities at September 30. Our CapEx spend to date is $720 million and we are targeting $1 billion for the year, down from our original plan of $1.2 billion.

Let's turn to page 5 and the outlook. The outlook for agribusiness remains positive. Northern hemisphere crops are large, which will be supportive to processing volumes, capacity utilization, and margins, and to our volumes in our grain merchandising businesses. Customer demand is strong, as inventory pipelines are lean and need replenishing and protein processors' economics are good.

South American farmers are expected to plant a record soybean crop, which should be favorable for our Brazilian and Argentine asset and logistics networks.

Our sugar and bioenergy business will face a difficult fourth-quarter environment, and we anticipate a loss in the quarter. ATR, the sugar content in the cane, will continue to remain near a record low, and we are lowering our expected annual crushing volume to 19 million tons versus our capacity of 21 million tons.

The reduction is due to an increase in the number of crushing days that we expect to lose to rain, as rain days are higher than our expectations. We have the cane available to crush 21 million tons and will carry any unused cane into next year.

Looking forward to 2014, we expect the business to be profitable. We will have sufficient cane available to crush 21 million tons and continue to remain focused on achieving our productivity targets to offset the impact of inflation and become a low-cost producer. Under the current ethanol pricing scenario, we will not be able to achieve our target of $8 to $10 a ton EBIT. If ethanol prices were to increase approximately 20%, it would be possible for us to reach that level.

We are reducing capital spending to the level required to maintain our business and expect to be cash flow positive.

Our sugar and ethanol trading and merchandising businesses continue to perform well.

Food and ingredients should continue its momentum and have a strong finish to the year. Edible oils is entering its seasonally stronger quarter and demand for soft seed oils should be stimulated by lower prices. Wheat milling margins in Brazil should continue to be supported by tight supplies and corn milling volumes should increase with the arrival of the new crop. Our Mexican wheat milling business should continue to perform well.

Looking to 2014, the addition of Altex to our milling portfolio will increase both earnings and returns.

Let's turn to page 7. With the strengthening of our cash flows and the receipt of the fertilizer funds, we want to discuss our capital allocation priorities. As we have consistently stated, our first priority is to have a strong balance sheet, as defined by a BBB credit rating. As a commodity company, it is imperative that we always have readily available liquidity and access to capital.

With the accomplishment of that, we will then evaluate allocating remaining capital to three main areas -- reinvesting in our business; mergers and acquisitions, with a focus on businesses that fit with our core agribusiness and food and ingredients businesses; and returning capital to shareholders through dividends and buybacks.

We recognize that dividends and share repurchases are an important overall component of value creation for shareholders and they are part of our capital strategy. We have increased our dividend every year since our IPO in 2001, averaging an 11% annual increase over that period. With respect to share repurchases, we have an existing program of $950 million with approximately $500 million available.

We evaluate all of the available capital allocation possibilities and prioritize our investments based on maximizing returns and creating total shareholder value.

That concludes our remarks, and we will now open the call for your questions.

(Operator Instructions). Ann Duignan, JPMorgan.

It is Ann Duignan. I wanted to step back and talk a little bit more about the comment you made on the ethanol business in Brazil. I think you said that ethanol prices would need to rise 20% in order for you to achieve your targeted goals. In the big scheme of things, how realistic is this, really, given the Brazilian government's focus on inflation or lack thereof and the fact that 2014 will have elections down there?

Thanks for the question, Ann. I think it is very hard to predict government policy and when a government will or will not take action.

The energy policy is a focus for the Brazilian government. They have to support increased gasoline consumption and need to find ways to support that in an economic way for the country. And we believe eventually that will lead to support for the ethanol industry.

The timing of that is hard to predict, and that is why our base calculation for next year does not include those price increases, and we don't think we will achieve the target. What we are trying to do is to point out what kind of price increase would be required for us to get there, so you and others can gauge that.

And we would just also point out that the ethanol price and the Brazilian gasoline prices are still 30% lower than the international parity for those prices, and they are an importer of gasoline. So over the mid and long term, we think it's very likely that we have to see movement in ethanol prices, but in the short term, we're not forecasting that, and it will be a government decision, not a decision of Bunge.

A fair point. And my follow-up question is, obviously, around the comment in the press release that you are now exploring a full range of options for the sugar business. Can you just expand on that and give us some more color in terms of defining what you mean by exploring a full range of options?

This is Soren. It really just means that we will consider all reasonable alternatives in the fullness of time to get us in a better spot. Don't want to get into any specifics on this call. The important message really is that the status quo is unacceptable and that we will be active in finding better ways to position ourselves, and then we will come back with more as we know it.

Okay, and if you were to generate some kind of income from whatever you decide to do in that business, is there anything you can do in South America, going into next year, in preparation for yet another record planting season? We had such logistical problems this year, and now we're going to plant even more going into this season. Is there anything you can do now in terms of investments that would help you alleviate some of the logistical problems we might face next year? And I will leave it there. Thanks.

Okay, thanks, Ann. We do have a new port coming onstream in Brazil, in [Tefron] in the northern part of Brazil. That will add roughly 1 million tons of capacity for Bunge during the next year, and it will grow to 2 million tons when it's up at full capacity. So that's one extra relief valve, if you wish, for the overflow that is likely to be there again next year in Brazil.

For the rest of our network, we learn every year, just like everybody else does. We performed well in Brazil this year. We've managed a very complex logistical situation, but we always learn and we always find ways to improve.

So anticipating next year's what is likely to be a record soybean crop and pressure on the system, we are building in more flexibility. And I think we will manage well next year, as well.

Okay, I'll leave it there. Thank you so much.

Adam Samuelson, Goldman Sachs.

Maybe first off, Soren, there was a large fire earlier -- a couple weeks ago at the Copersucar warehouse at the Port of Santos. Beyond the issues with ethanol pricing and cane crush productivity that you are facing in the sugar business, is there any impact there that we need to be thinking about in the sugar markets over the next six months?

I would say over the next six months, probably not so much. We have been able to, and I think the market will be able to, accommodate the sugar flows that are left for this year in Brazil, now that the peak corn and bean shipment period is over. So I don't think it's going to be a big issue between now and, let's say, April next year.

The real question will be how do we get up to peak shipping capacity in sugar as we enter the new crop season sometime in April, May, June next year? That's a long time from now, so there's plenty of time to adjust, but for the next six months, I don't expect any big impact.

Okay, and then also in sugar, you are talking about more restrained capital spending as you look into 2014. Maybe elaborate on what you are doing there. Is it slowing down the pace of replanting or are you slowing your fertilizer applications, investments in machinery, and how should we think about this lower CapEx spend as it relates to your future plans for the business?

The CapEx really is focused on cane renewal, and as you know, we have gone through a period here where we have really renewed a lot of cane the last three years, so it will be a lower rate of replanting. We don't need it. We have made the investment already.

We're not going to cut short anything that brings productivity gains, so fertilizer applications, as you mentioned, for example, that would not be one area we would be -- we would try to save on. But anything that -- so anything that has to do with cane renewal and productivity, we do think our cost per unit to its lowest possible level is still in play and we will be very thoughtful how we spend that money, but anything that has to do with expansion is off the charts for the time being, for sure.

Okay, great. And maybe just, finally, for me, just switching gears onto crush margins. As we enter the new crop here in the US, just maybe an outlook on crush margins looking into 2014, and thoughts where competition from Chinese crushers and potential changes in biofuel policy here in the US and how that impacts your outlook for crush margins?

That's a lot of -- those are a lot of topics, but let me start with outlook for crush margins in the US or maybe the northern hemisphere in general, because it's the same when you look across Europe to the US to China.

Margins are good. They are as good as they have been in a while, so we expect a strong fourth quarter in US crushing. Canada, on the back of really an all-time record canola crop, should have a favorable crushing environment.

In China, very strong demand for soybean meal has led to very favorable margins, at least compared to last year. And in northern Europe, both soybeans, and in southern Europe, both soybean crushing margins, as well as soft seeds, so sun and canola, are looking significantly better than they did last year at the same time.

So the crushing environment for the next, I would say, one or two quarters is favorable.

Okay, thank you. Thanks very much.

Michael Piken, Cleveland Research.

Just wanted to elaborate a little bit more on the crushing side of the business. If Brazil ends up producing a record soybean crop, as expected, how do you see crushing margins developing next year in a situation with a lot more global soybean supplies out there, and how does that impact your overall business?

I think overall we would expect that with a record soybean crop in South America that we will enter a period of more modest prices in general, more modest prices for protein in general, and in a meat production sector globally that is now profitable.

It's a big change from where we have been the last couple of years, but if you look across pretty much all geographies, meat production, whether it is poultry or pork, is profitable. So a big crop, somewhat more modest prices should stimulate demand growth back to a level that is more akin to what we saw before we had the big price hikes two or three years ago.

So the overall demand pull should be favorable, and I would say with an excess of soybeans in South America and a stock building generally throughout next year in soybeans, the environment for crushing should, generally speaking, be better.

Okay. And then, with respect to your agribusiness volumes, how should we think about the impact of the larger crops here in North America, in terms of specifically on the grain side? What types of volume growth could we expect to see?

We will enter a period now in North America where we will get into a more normalized shipping season. The last couple of years have been curtailed by poor cops, but for, example, EGT, which is our most recent facility in the West Coast, will be running at full speed now, this fourth quarter, and going into next year as well.

Our Nikolayev export terminal in the Black Sea will be running at full -- is already running at full capacity, so overall volumes in agribusiness should continue to grow. My guess is somewhere around 5% year on year is a reasonable estimate.

And as you get into the shipping season in South America, starting in February next year, we would expect to see similar growth rates year on year there, with the startup of the new terminal in the north and I think an overall better utilization of what we've got.

Okay, perfect. Thank you.

Ryan Oksenhendler, Bank of America.

I just wanted to focus on capital allocation a little bit, because it looks like -- I mean, to me, your balance sheet is already at your target levels. You are BBB at the rating agency. So as you move down to the lower buckets, you are already funding your business, and so when you look at M&A, are you looking at large-scale or small-scale M&A? And if that isn't materializing, what's preventing you from doing a large-scale share repurchase?

We just announced yesterday an acquisition of Altex. I don't know if you saw that or not, but that is the type of acquisitions that we are contemplating. It's a good example, exactly, of what we want to do, bolt-on acquisitions in an area where we have competence, where we have capabilities, immediate returns, great fit. So we will continue to look at those types of things.

As Drew pointed out in his presentation, we will be looking at M&A, CapEx, and returning money to shareholders, whether it is through share buybacks or dividends, on an even level. They have to compete with each other. And of course, in the case of an acquisition like Altex, there is always the timing and strategic element, as well. We could not wait until, let's say, February to decide to buy Altex. The opportunity was now, and we took it.

But share repurchase is part of our capital allocation strategy, and we will aim to maximize shareholder value, and that is part of it. So we are not looking at this as a lower bucket. It's an equal consideration.

Okay, that's fair. And then, in terms of the strategic alternatives for the sugar business, I guess, how long should we expect that process to go on for before you make a decision?

I don't want to put a timeline on this at this point. I think the important message to you and to others is that we got our eyes open. We are aware of the challenges of the industry. We are going to be active, and we will take our time and make sure that we end up with a thoughtful conclusion on this in the fullness of time.

Okay, and then, just turning to agribusiness, do you expect to benefit -- you talked about protein margins, but I know there's been a lot of wheat put into feed rations over the last few years because of the price narrowing relative to corn. But now that you've got that gap opening up again, do you expect that to benefit meal demand and be a positive for you guys next year?

Yes, that's a good point. In fact, wheat prices have moved back to bread prices. In other words, moving out of feed rations in most places of the world, which is a good thing.

So it should mean that, everything else being equal, that protein demand for soybean meal should increase on the back of this, and the impacts are a little different depending on where you are in the world, but overall, it's not an insignificant impact. So it's a positive.

Okay, and then, this is my last question and I will get back in the queue. But can you talk about what you're seeing in terms of farmer selling in the US regarding corns and soybeans, and how will that impact volumes?

I think as we have gotten into the harvest here, yield reports have continued to improve, and we are looking at a very large harvest, no doubt.

Farmer selling, I would say it's been modest so far. Prices in corn, as you know, have come down significantly from when they were a year ago, and so, I imagine many farmers are hesitating a little bit.

We are buying what we need, but I would say it is not a willing seller to the extent that we've seen, for example, in South America earlier this year. So a little bit of retention is probably the right way to express it.

Great. Thanks, guys.

Ken Zaslow, BMO Capital.

So what was the catalyst to make you reconsider your efforts in sugar?

There was no particular catalyst, Ken. We have been thinking and analyzing this for a while, and with the benefit of a fresh look for myself, have really spent some time with the team here over the last months in sort of digging into the industry dynamics. And thought it was important that we expressed our unbiased and neutral view, and this is where we are.

Okay. You have $1.5 billion of cash on your balance sheet, and you started talking about that returning capital to shareholders as share repurchases is an important part. That has really never been part of the Bunge story. Can you talk about the timing to which you expect to deploy cash towards share repurchases?

I think, Ken, we're still going through the evaluation of when we do that. It is very much on our agenda, but we haven't made a specific determination.

I think the one thing I would point out with the cash is most of that cash right now is the fertilizer proceeds, of which we had targeted to debt reduction to get ourselves at a strong, stable BBB rating. We have not gone and paid down that debt yet because we want to do it in the most cost-efficient way, and we need to be able to move the cash into debt repayments at the right timing.

So we expect that will happen in the fourth quarter, and as we get to the end of the year and these crops are finished, we're going to get a lot better idea of what our cash flows are, et cetera. But we're actively looking at when it would make sense to make a move in that direction.

Would it be fair to say that by the end of the fourth quarter, you will relay that message to Wall Street? Is that fair?

Yes.

Great.

Maybe the first-quarter call, Ken, to be precise. So (multiple speakers)

Exactly. No, that's what I expected, but if you guys know by the end of your quarter, you don't report until after the quarter. No, that's fine. That's what I was implying.

And then, in terms of Argentina, I guess my question there is, and this is my last question, is how is the selling going there? What is the crush outlook, because it seems like everywhere else around the world, things are humming really nicely, and that's the only issue, probably, in your crushing and logistic issue. Can you just talk to that and when do you think it will be resolved and how do you think things are going to play out in Argentina?

Farmer retention in Argentina is very strong. And we don't actually expect that to change anytime soon.

It's a hedge against inflation. It is the expectation of a devaluation. We have seen it before. The Argentine farmer has the capability of carrying over large amounts of soybeans from one crop to the other, if that feels that it's the best way of hedging the economic exposure to them in Argentina. And that's exactly where we are right now.

We do expect a significantly improved crop next year. So with that, as of March, no doubt we will see loosening up of farmer selling and movement to the ports in the crushing industry, but in the near term, don't really see any change.

On the other hand, you can also say that part of the effects of this retention and the reduced crush rates in Argentina is actually what's benefiting North America and, to some extent, Europe as well. There is no question that quite a bit of yield demand has been shifted from South America, Argentina specifically, to the US and will be executed over the next three to four months, and it's leading to what we believe will be an export pace that will be as good as last year's. So it's -- for Bunge, this is not altogether bad.

Great, I appreciate it. Thank you.

Tim Tiberio, Miller Tabak.

Maybe we can touch a little bit more on the recent acquisition. How should we think about the potential incremental EBIT for 2014 from that business? And as we look out longer term, it seems like this is going to be an area of focus on the M&A side. What size of a business do you want to grow this to over the next two to three years?

Okay. Well, in the case of Altex and Mexico, that's probably what you are referring to. I would expect that the EBIT contribution for this business next year will be somewhere around $35 million, maybe a little bit more. It will make Mexico an important part of Bunge's North American portfolio.

Added to La Espiga, which we acquired year before last, it really gives us a very nice national position in Mexico. Makes us a leading wheat miller with the best assets.

It's a business that has steady EBITDA margins. It is very much linked to agribusiness. Our ability to procure and manage risk around wheat flows is strong. And it fits our focus on B2B customers in North America, and globally, as well. So this is a very nice acquisition that fits what we are good at, and, yes, we would like to pursue more of the same kind.

We're actually quite optimistic that we can grow significantly the run rate earnings of food and ingredients quite substantially over the next two to three years. I don't want to put a number on it, but our ambitions are not small.

Okay, and are there any other regions where you see the opportunity, I guess near term, to backfill your footprint, I guess both on the edible oils and milling side? How should we think about that?

We have a very strong position in Brazil that we want to protect and enhance, so you should -- you will see activities in Brazil that will cement our position and our strong position there.

I think in North America in general, we have a strong milling presence and would be open to add, whether that is in rice, whether it is in wheat, or whether it is in corn.

There are other parts of the world that we are looking as well. I don't want to get into those details at the moment, but we're actively scouting for these types of opportunities in growth markets and, again, where they have close linkage to our B2B customer base and agribusiness.

Okay, thanks for your time.

Matthew Korn, Barclays.

I just wanted to ask a little bit, could you talk maybe a little bit more about downstream food product demand as you are seeing it, all the drivers, the demand for oils and margarines and cornflower? Because we hear a lot about the economic uncertainty in Latin America, just want to see your take on whether the bios or the staples have shown any kind of signs of weakness?

No, we don't, actually. In Mexico, let's say, Mexico and Brazil, in particular, which is where we really have insight to this, demand is strong across all the categories, I would say Mexico in particular.

One of the reasons we were so excited about the Altex acquisition is because Mexico really does have some of the more important growth dynamics and trends of the South American economies, but both in Brazil and Mexico, we feel good about both oil and flour consumption and we are coming from relatively lower levels per capita consumption. So, plenty of room to grow, really.

Got it, and then just as a follow-up, as the new crop of soybean here in North America, the harvest has progressed, have you seen the opportunity for -- does it tick up utilization of your North American crushing plants? There has been scattered reports of pending restarts throughout the Midwest. I wanted to see if those are, in fact, being brought back online.

Yes, well, all our facilities are up and running and running essentially at full speed. And we believe that will be the way they will run for at least the next, I would say, four, maybe five months.

All right. Thank you very much.

Brett Wong, Piper Jaffray.

Just a couple follow-ups. I was wondering for the agribusiness, when do you see year-over-year growth in volumes with supply replenishing? Is that in the fourth quarter this year, more into next year? Just a little more detail on that.

I think it starts this quarter, yes, in the fourth quarter, and that it will continue throughout the South American harvest season and probably into the tail end of the summer next year, given the size of the crop in South America. But it starts now.

Great, thanks. And then, just another one on sugar and bioenergy. Your expected loss for this fourth quarter, how does that compare to third quarter? You see it more or less pronounced?

I think at the end of the day, that is going to depend a little bit on how much we can crush. You are entering into the rainy season in Brazil, so it's a matter of when the rainy season comes and how much ends up being crushed. But order of magnitude, a range around the third-quarter number seems reasonable.

Yes, that's right.

Great. Thank you, guys.

Matthew Korn, Barclays. Vincent Andrews, Morgan Stanley.

If I could just ask, are you philosophically opposed to -- let's assume hypothetically that you find a great way to exit the sugar business. Are you philosophically opposed to Bunge being the core agribusiness operations, as well as the existing food and ingredients business?

I am not philosophically opposed to anything that's right for shareholders. So we will consider all reasonable alternatives, as we said, in the fullness of time, but I don't want to prejudice any outcome at this point.

Okay, I just asked because the history was you got out of fertilizer, you got into sugar, and it just didn't seem like at the time the direction of the Company was just going to be status quo with a lot of return of capital. So I was just curious if your view was different.

And I just have a couple of quick ones. Can you tell me how much debt is allocated to the sugar business today?

We tend to manage our debt profile on more of an overall basis, Vincent. To give you a feeling for the sugar business and how you would like to allocate it, there is about -- just under $2 billion of fixed assets -- property, plant, and equipment -- in the sugar business, plus some working capital, which isn't that large. It's not small. Maybe another $500 million.

Okay, that's very helpful.

And in terms of where US crush utilization rates are, it was masked a little bit over the last couple of years with the tough crops, but if you go back several years ago, we were in a period of oversupply because some new capacity had come online. Is your expectation that in 2014, utilization rate in the US will be, let's say, high 80s, low 90s or do you have any sense of where it is going to be?

I think next year will not be so different than this one, actually, in that we will probably have a very strong Q1, and then because we have essentially a record pull on soybeans again this year for export, chances are that we will be limited by soybean availability again sometime late spring/early summer.

And so, the summer rates of crush will be low, maybe not as low as they were this year, but they will be seasonally lower than usual. And then, rebound strongly again in Q4 2014.

So on average, I would say utilization rates will be better than last year, but not by a lot. They will be very seasonal, so strong Q1, not so strong Q2, probably a weak Q3, and a strong Q4 again.

Okay, thanks. And then, lastly, I know you didn't disclose the purchase price of Altex, but over the years, there have been a number of acquisitions with undisclosed financial terms. Can you give us a sense of where your head is on the risk-adjusted return requirements for these types of deals?

The returns, obviously, have to cover fully our cost of capital, and they do, and our hurdle rates are set accordingly.

So this is a very accretive acquisition. It is an acquisition that is also in a space where we feel very comfortable, so we consider the risks in achieving those returns to be very modest. That is really the best way I can answer your question.

And [looking] at the timeframe in terms of achieving a cost of capital plus return, is that immediately, a year, or two years?

Within the first two years, for sure; maybe even sooner.

Okay. All right, thank you. I'll pass it along.

Robert Moskow, Credit Suisse.

By the way, if the stock continues to trade flat today, I think that might be the first time it's been flat on an earnings announcement in about six years, so I guess that's neither good nor bad.

I wanted to know, Soren, did you take a look at ADM's experience with Gruma in relation to entering into the Mexico wheat milling business? Gruma is not exactly the same kind of business, but their investment didn't end quite so well, and I just wanted to know as you looked at assets there, why this and why not others and what do you think the risks are of operating in the market?

We have studied all that. Believe me, we have been studying Mexico intensely for the last several years, so this wasn't a quick decision that we reached.

And we have been able to observe and look at the Mexican flour milling industry through the eyes of La Espiga for a number of years. We have been -- we were partners there first for well over 10 years, and so understanding the Mexican flour milling business, I think we got from the inside. That's what gave us the confidence to acquire the majority in that business a couple of years ago. And based on that and some, I think, very diligent and thorough work on the industry itself, we reached the conclusion that the collection of assets that Altex represents really would be the best way for us to expand.

It is quite a different business than Gruma, as you correctly point out, so I don't think you can really compare them, but I would give you confidence or comfort that we have studied this and we think we know -- we know what we are doing.

Okay. And as you -- is one of the reasons that you are putting more effort into M&A in this kind of area to reduce the volatility of the overall portfolio? Is that part of your consideration?

That certainly is one of the considerations. Stable businesses with more stable margins, nice complement to our agribusiness upstream. There is a very strong linkage between agribusiness and this kind of a food business, and, all else equal, should lead to more stable returns and ultimately a better multiple.

Okay. Thank you very much.

David Driscoll, Citi Research.

This is Cornell Burnette on the line for David. Just wanted to quickly talk about the current environment for agribusiness. So, soy crush margins on the Chicago Board of Trade are very strong, and you actually confirmed that you are seeing this. You also said that your US soy crushing plants are running at full capacity, and throughout the northern hemisphere, including Europe and China, crushing margins are very good and benefiting from less competition from Argentina. In addition, we have a very big crop in the northern hemisphere, which should drive volumes higher.

My question is when I look at this, it seems to be one of the best environments, I would say, for agribusiness that we have seen in quite some time. I wanted to know if you agreed with that assessment of the situation, and if you thought that could potentially help drive something like record profitability in your agribusiness segment in the fourth quarter, because currently, things look very strong.

That was a nice summary. I think we share the positive outlook for the fourth quarter. I wouldn't draw the line to records at this point. That's too early. But it does look like it's a very favorable operating environment in general in North America in crush and certainly in Europe.

China, as you know, can change quickly. It is better than it has been, or it certainly is better than it was last year, but it's very, very volatile, so it's probably a little dangerous to draw too many conclusions for an extended period of time there.

But it does feel like it is a very constructive operating working environment with profitability really across the chain, extending into the meat sector, and clearly, demand for protein is up across the spectrum. So you are correct in being optimistic about the fourth quarter, especially as it relates to crush.

Okay, and then, secondly, just looking at things going a little bit further out, you had mentioned that the pace of utilizations and crushing operations in the northern hemisphere will look similar to the way they did last year, in that we will be very strong on crushings in the first part of the season, but as we get into the summer, things will be below normal, I would say, given where the crop sizes are at.

But I would say do you think that overall on the agribusiness segment, one of the things that is different this time relative to last year is just that, overall, we have a much bigger crop in the US with corn and so forth and wheat, and so when you look at your merchandising volumes in the second half of the year, or over the summer months, do you think that there is the possibility that they will be much better than what we saw this year?

I think the overall agribusiness operating environment in the US in particular this coming year will be better than it was last year.

Soy is unique in that while we have a decent crop and a nice crop, we will run into a constraint in availability sometime in Q2 and Q3. But for corn and wheat, it should be more normalized merchandising volumes and handling margins.

So the US soy is unique. Europe is a big difference to last year in that we will have ample seed supplies in both rape, canola, and sun to crush at full rates and most likely with reasonable margins all the way through the year, which was not the case last year.

Okay, very good. Thanks very much.

Diane Geissler, CLSA.

I wanted to ask a little bit more of a philosophical question, and I missed the first part of your call, so I apologize for that if this has already been covered. But could you just talk about where you are in terms of the 2014 budgeting process?

And then, obviously, the commentary this morning is more about allocation of capital than I think we have ever seen, and I think, Soren, that is sort of your focus, new on board here. So can you just talk about how do you tease out better operations just because of a better operating environment, versus this is a business line we should be in because over the longer term the returns are superior to, say, something else we could potentially do with our capital? Because I think it's clear that the coming 12 months are going to be a pretty good operating environment for agribusiness, and obviously, sugar, you are taking a second look at.

But I just -- because it's a new stance for you and I just want to get an idea about how you think about that, and then, how is it playing out in the budget you are setting for 2014?

I think there are two streams that you are referring to here. One, we're in the middle of finalizing our forecast process for 2014. That, at this point, is mainly impacted by the asset base we have in place and how we optimize and maximize the returns from that asset base. And there is capital allocation decisions around where we want to invest working capital, because that's still flexible at this point and we will clearly deploy the working capital to the highest return areas.

So when you come to the budget process, that is the case, and we continue to look at performance management in that and where we can improve margins, where we can reduce costs, et cetera. So the normal things you would expect us to be doing, we are doing around 2014.

When we look forward on the capital allocation process, we are always looking at the macro environment in all of our industries. As you know, we are in agribusiness and basic foods. Those are heavily driven by population and income growth, so we look at which markets are going to be the consumers on that basis and we see very good growth in a lot of markets across the world, Mexico, obviously, being primarily one of them when you look at their income and population growth and put it out in the future.

But in the last few years, we have invested a lot of money in the various countries in Asia. We have done a lot in China. We have done a lot in India, Vietnam, and those are all countries that fit that profile. So we are looking for places that have the right long-term macroeconomics and that we believe, long term, will have a strong margin structure.

And the year-to-year margin structures in our business fluctuate, as you know, but if you look through our agribusiness through the cycles and on an annual basis, it exactly turns out to be pretty steady profit. So if you are in the right markets that have the growth, that have the consumption, if you're in right origination markets, which we emphasize a lot, where you know the crop volumes will grow and you know the opportunities are there in ports and logistics and distribution, over the long time, agribusiness will be very successful.

And we look to add on with the food business wherever we can, particularly if we can integrate it with agribusiness. You have the wheat milling business that is a perfect example, where you have a market like Mexico that imports wheat, so we can use our origination and logistics capabilities in Canada and the US to supply the wheat to Mexico and gain competitive advantage. And we can use our excellent skills of our food team to build out the downstream profitability in that business.

And if you look across margarine, mayonnaise, oils, it's really the same. How do we bring our complementary skills together? How do we have a strong supply chain, and is it a market where our food team can create the necessary margins and growth for the future?

So those are the two priorities internally when you talk about business planning. When you look at it, where does returning funds to shareholders fit in, and what we are saying is we always have to look at the value that returning funds to shareholders is going to create, and compare it to whether or not that we have internal investment opportunities that are going to create even greater value for shareholders, or not. And then, we allocate the funds to where the return to shareholders is best.

I appreciate that, but I guess a follow-on, and I think this touches to what Vince said earlier, which is, basically, to me when I look at the sugar business, it seems like a comparable business to agribusiness. It's growing crops and processing them and making food items that you sell to the same customer base. So I guess I'm just a little confused as to why you can make it work in agribusiness, but why it's been so difficult to bring that same skill set into sugar?

I think we are bringing that same skill set into sugar, but there are a couple of pieces of the sugar equation that are very difficult to manage risk around. One is the agriculture itself. We are farmers, and so this past season is a good example of just how volatile it is.

Right.

The agricultural aspect in sugar, we don't -- we are not exposed to in agribusiness.

The second thing is really government policy on pricing, particularly pricing of gasoline, which knocks on ethanol.

So those are two additional variables that really determine the outcome that are difficult, if not impossible, to manage. And so, that would be the defining difference between agribusiness and sugar as we see it today.

Okay, all right. Thank you for the comments.

Thank you. I would now like to turn the call back over to Mark Haden for closing comments.

Thank you, everyone. This completes the call.

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