Bunge Global SA (BG) 2014 Q1 法說會逐字稿

Welcome to the first-quarter 2014 Bunge earnings conference call. My name is Lorraine, and I will be operator for today's call.

(Operator Instructions)

Please note that this conference is being recorded. I will now turn the call over to Mr. Mark Haden. Mr. Haden, you may begin.

Thank you, Lorraine. 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 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 this call this morning are Soren Schroder, Chief Executive Officer; and Drew Burke, Chief Financial Officer. I will now turn the call over to Soren.

Good morning, and welcome. The first quarter was slower than expected, but our outlook for the remainder of the year is positive. Agribusiness should perform well. The global environment is solid, with growth and trade in demand for oilseeds and grains.

Food & ingredients, which performed as expected in the first quarter, should demonstrate sequential improvements throughout the year and deliver another record result. And despite the weak start in sugar & bioenergy, we project that we will reach break-even to slightly positive EBIT for the year, and fund all segment CapEx from operations. The strategic review of the sugar milling business is progressing, and options lie ahead to improve our position in this segment, and returns for shareholders.

Overall, we are confident that on a combined basis, agribusiness and food & ingredients, will generate a 2014 return on invested capital at 1.5 percentage points above our weighted average cost of capital of 7%. So we expect significantly higher results during the rest of the year, particularly in the second half. There is no change to our stated objective of generating overall returns at 2% above cost of capital in 2015.

Now, let me review some specifics from the quarter, starting with agribusiness. We are particularly pleased with our performance in Brazil, where our assets and our commercial strategies performed exceptionally, but we faced headwinds in other areas. The primary negative variances versus last year were related to risk management, incoming grains, above-market ocean freight cost in our distribution business and the poor crushing environment in China.

Our overall grain volume was in line with expectations, but we expected a lower price environment, particularly for wheat, which has not materialized. Political turmoil in the Black Sea and deteriorating winter wheat conditions in the US were the primary catalysts for the weak rally, which ignored the more-than-adequate global stocks.

While we struggled in the first quarter, we are confident in our approach and our team for good reasons. Our economic analysis and risk management capability has delivered strong results over many years, and we believe the same will be the case this year.

China presented significant challenges because the market shipped a record amount of soybeans from both Brazil and the US into a sluggish demand environment. The results were stockpiling and negative crush margins at destination, as well as pressure on delivered soybean prices.

We managed to reduce the pipeline feeding our China plants, but we still suffered negative results from both actual crush margins, as well is reduced value of our [float] inventory. Margins remain depressed. But as pipelines reduce and demand for poultry recovers, we expect that positive margins will return in the second half of the year.

Soy margins were very strong in Europe, the United States and in Brazil, and for the next two quarters should support stronger earnings as farmers continue to market their crops. The Argentine farmer has priced only 20% of the crop, and Brazil is well-behind last year, with only 60% fixed. This should translate into active pricing and opportunities to secure good forward margins.

Most of the variance in sugar environment was related to mark-to-market losses and industrial hedges. We had and still have the view that global sugar is over-supplied for the next year. And we locked in sugar places ahead of time, resulting in a negative mark-to-market of $31 million as sugar futures moved higher during the quarter. Much of these losses will reverse throughout the year. Our global trading business also had a slow start to the year, but is now back on track.

We've made significant improvements to cost and operating performance across a spectrum of sugar milling KPIs that should result in lower unit costs as the crush [contain] progresses. The most significant change is the reduction in headcount of about 10% since the beginning of the year. Other improvements have been realized in harvesting productivity, industrial yields and logistics.

We faced some unexpected challenges in the first quarter, but market fundamentals are strong, our outlook is positive and our focus on improving Bunge's performance is sharp. Our cost base is stable, and cash cycle and working capital use improved compared to the prior year. And we are making solid progress in important areas, including our food & ingredients improvement program.

The food & ingredients program is aimed at improving operating efficiencies across our milling, refining and packaging operations, supporting customers in categories and boosting margins to improve product positioning and greater innovation. It has resulted in a temporary increase in SG&A, but the benefits are well worth it. Segment margins and volumes were both higher at the quarter, and reduced working capital by 30% compared to last year.

We continue to approach capital allocation in a balanced manner. We repurchased approximately $90 million of shares in the first quarter, and expect to reach our previously announced $200 million repurchase target during the second quarter, at which point we will re-evaluate.

And of course, we are pursuing targeted growth in key areas. Last week we inaugurated our new port and export corridor in Barcarena, Brazil, and our first port in Australia at Bunbury will soon load its first vessel. Our new state-of-the-art crushing and refining complex at Altona, Manitoba is starting up production in what looks to be a very favorable crush environment.

All these projects will add to earnings in the second half of the year. Now I will turn it over to Drew for some additional insights to the quarter and our outlook.

Thanks, Soren. Let's turn to page 3 in the earnings slides. As Soren said, we had a disappointing start to the year, with total segment EBIT adjusted on $75 million versus $260 million in the prior year. Net income attributed to Bunge was a loss of $13 million versus a profit of $180 million in the prior year. And income per share from continuing operations adjusted was a loss of $0.12 a share versus a profit of a $1.15 in the prior year.

In agribusiness, adjusted EBIT was $79 million versus a prior year of $175 million. Our oilseed processing businesses performed well and above prior-year, with strong margins in Europe, Brazil and the United States. Our China crush business had a difficult quarter, as margins were depressed due to an oversupply of beans in the country.

Grain origination results were above prior-year, but mixed across geographies. Brazil outperformed with the arrival of the new crop and excellent execution, particularly in logistics. North America performed below prior-year, mainly due to logistical issues with the railroads.

Our grains, trading and distribution business had a difficult quarter, with the results well-below prior-year. Our commercial and risk management strategies anticipated a declining price environment that did not materialize. Instead, prices increased due to deteriorating US winter wheat weather conditions and the political disruptions in the Black Sea eroding margins. Our business was repositioned during the quarter.

Additionally, our ocean freight costs were high in the quarter. In order to manage the logistics around our global commodity flows, we operate a fleet of vessels under time charters. Accounting practice does not allow us to mark those charters to market. And therefore, we may on occasion have vessels with higher rates, which are applied against commodity sales with lower freight rates, thereby creating higher costs and a lower margin in that period. That was particularly the case in the first quarter, where higher-priced vessels towards the end of their lease contracts were used against lower-priced freight commodity sales.

Our full book of time-chartered vessels is favorably priced against the forward freight market, and we will experience economic gains when they execute in the future. For the balance of 2014, we do not expect any significant profit and loss impact from vessel executions.

In addition to the impact [creating re-matching] vessels against commodity sales, there is an accounting result from our use of forward trade agreements, which were used to manage the price risk of our time-charter fleet. These derivatives are mark-to-market, which means that as freight rates go up, we experience a negative accounting result in the derivative, without an offset in the underlying time charter. During the quarter, we also had a negative impact from this effect.

Our sugar & bioenergy business had an adjusted EBIT loss of $64 million versus a prior-year profit of $23 million. $31 million of the loss was related to mark-to-market losses on the hedge of our forward sugar sales.

Trading and merchandising results were negative versus of a strong prior-year performance. Excluding the hedge impact, our industrial business performed in line with the expectations. Given the favorable pricing environment for ethanol and energy, we started operation at all mills during the quarter. This resulted in start-up costs being pulled forward from the second quarter.

Edible oil results were below prior-year, but the business developed nicely during the quarter as we focused on improving margins, investing in our brands in key retail markets and driving cost savings through our performance initiatives. Our United States, European and Asian businesses performed above prior-year, while we realized lower results in Brazil and Canada. In both Brazil and Canada, our focus was on margin improvement. This resulted in volume reductions in the first part of the quarter that recovered in March at the higher-margin levels.

Our tax rate in the quarter was unusually high due to our earnings mix. This occurred as we realized losses in companies, primarily to sugar entities, where we do not realize a tax benefit. We continue to forecast a tax rate for the full year of approximately 23%.

In our wheat milling business -- to go back a minute -- we did perform well in the quarter. Our Brazilian business had strong results on the back of very good margins. In our Mexican business, both the acquisitions we made this year and in prior-year performed in line within expectations and were profitable. Corn milling results were down slightly from where they had historically been.

Please turn to page 4 and our return on our invested capital. The chart shows our trailing fourth-quarter average return on invested capital, adjusted for notable items in the last three quarters of 2013 and the first quarter of 2014. For the first quarter of 2014, we have applied our full-year forecasted tax rate of 23%. The adjusted returns are shown for Bunge Limited and Bunge Limited excluding the sugar & bioenergy segment.

Overall, Bunge Limited return on invested capital continues to perform below our weighted average cost of capital. This is due to the performance of our sugar & bioenergy business, and is the reason we have commenced the strategic review.

Our other businesses, excluding the sugar & bioenergy segment, continued to perform above our weighted average cost of capital, but are not yet on our longer-term target of weighted average cost of capital plus 2%, which we expect to reach in 2015. For 2014, we are targeting weighted average cost of capital plus 1.5%, higher operating income, a lower tax rate; and strict management of working capital should allow us to achieve this.

Let's go to page 5 and the cash flow highlights. Cash used for operating activities in the first quarter was $1.1 billion and reflects payments to US farmers for grains purchased in 2013, and the arrival of the Brazilian harvest. The variance to prior-year is due to the early arrival of the Brazilian harvest and higher payments to US farmer as the prior-year amount was lower due to the 2012 drought.

Our liquidity position remains strong, as we had $3.6 billion of borrowing capacity available under committed credit lines. Our share buyback program is progressing. We purchased $92 million in the first quarter, and plan to purchase an additional $108 million in the second quarter. Capital spending in the quarter was $165 million, and our target for the year remains $900 million. Our approach to capital allocation is detailed in the appendix to the slides.

Let's turn to page 6 and the outlook. The overall environment for our businesses is positive for the remainder of the year. Through a combination of enhanced profit performance, management and disciplined investments in working capital we are targeting a return on invested capital of 1.5% above weighted average cost of capital for our core agribusiness and food businesses. We continue to manage our sugar & bioenergy business to be cash-positive, and expect the segment to break even for the year.

In agribusiness, demand should remain strong, as livestock economics are good and corn is replacing wheat in feed rations, increasing the demand for soybean meal. Large South American harvests will allow for strong export programs and high plant utilization. This should result in continued strong performance for our Brazilian business and increased performance in Argentina as farmer selling increases.

The Northern Hemisphere is entering its slow season when capacity utilization runs low. But looking out, forward margins in soy and softseeds are good. China crush margins are likely to remain pressured through the second quarter as the excess supply of soybeans is consumed. As supply and demand come into balance, we expect margins to improve in the second half of the year.

In sugar & bioenergy, we expect the segment to be break-even for the year. Despite the unfavorable weather to-date, we have sufficient cane available to crush at or near capacity. Our productivity and cost control programs are meeting their objectives. Following the normal seasonality, our profits will be weighted towards the second half of the year.

In food & ingredients, we expect each quarter to improve sequentially as we move into seasonally stronger periods of the year. Our performance improvement programs are gaining traction toward enhanced productivity, cost reductions and lower working capital usage. Our focus will be on improving margins and returns.

The integration of our Altex wheat mills is going well, and we expect there to extract more value from our Mexico milling operations as the year progresses. As I mentioned earlier, we are forecasting a full-year tax rate of approximately 23%. Now I will turn the call back to the operator for your questions.

Thank you. We will now begin the question-and answer-session.

(Operator Instructions)

Ann Duignan from JPMorgan Chase.

Hi, good morning guys. This is Ann Duignan here.

Good morning, Ann.

Good morning. I could ask you the same question that I asked [ABM] other day, and that is around the whole growth in on-farm storage capacity in the US, and the power that the US farmers now have versus historically.

Do you see that as a secular trend and something you're going to have to battle against every year, whether it's the fall, that they don't sell as much of their crop? Or going into harvest, they have too much crop and you can make some money on the basis just ahead of harvest? If you would just talk about how the fundamentals are changing with on-farm storage capacity in the US.

Yes, I think it's clear that certainly within the last year and probably this year, that fact has had a negative impact on overall margins in the grain chain. I think it will take another year and another good crop for that to reverse. We only had one good crop after two or three really poor ones to replenish supplies. And pipelines are still relatively empty.

So I think you will have a normalization of margins as soon as we get another good crop. But in general, the trend toward farmers having more control in managing their own price risk as they become a bigger and more sophisticated, I think, is undeniable.

Okay. And I agree with you on that. Can you talk about on the operating side, the productivity improvements? How are you going about that? Are you benchmarking against best-in-class, Bunge best-in-class, food processing best-in-class, processing industries doubling?

How are you going about that? And how do we get comfortable with the fact that coming out of all of this we will have a Bunge best-in-class in terms of the productivity and cost? Things you can manage.

Yes, I think as the year progresses and we advance in these programs, we should be able to share some of these KPIs with you. We want to make sure that we've got the right ones and that we've got enough data that it is credible.

Each segment has its own particular approach. In sugar & bioenergy, our benchmarking is mostly against the industry in Brazil, where there is a lot of public data available. But it is also within our own sugar assets. We have absolutely some of the best-in-class assets in our portfolio, so we can compare both. But there is plenty of industry data available to give you that benchmarking and comparison.

In agribusiness, our focus is really on our global crushing plants, both soy and softseeds, as well as logistics. Most of the benchmarking there is admittedly internal. But we also believe that we do have within the Bunge portfolio some of the best plants in the world. And logistics is something that is close to us.

Food & ingredients, we're doing some external benchmarking. But again, most of the benchmarking is created from within Bunge. And the process, I would say, in food & ingredients is more advanced than in any of the other segments, and very much focused on plant operations and supply chain at this point.

And to add to that -- just to explain how we look at internal versus external data. The external data is very helpful for us to set targets and establish a broad program of where we want to go and where we think the best-in-class companies are. When we get down to detailed action plans and detailed actions to define a specific goal, our best sources are internal benchmarking. We're operating a lot of similar plants.

Plus publicly, it is not always available when energy consumption is and across plants from our competitors. We do know that from every one of our plants around the world, and compare those numbers and develop plans to bring those that are not at best-in-class to that point. So it is a mix of the two. But the details of the program are often better run off of our own internal data.

Okay. And where are we, would you say, in the whole process, if you look at it just like a baseball analogy, and then I'll get back in line? What inning are we in?

I'm probably not the right person to ask baseball questions to.

I'm not the right one to be asking either. (laughter)

But I'll say in food & ingredients, on a scale of 1 to 10 -- 10 being the end-state -- we are probably somewhere around a 5 and a 6. In agribusiness, I would say probably around the same. And in sugar, I would say we are probably a little bit more advanced.

Okay, that's helpful. I'm not sure I know how many innings there are in baseball anyway. So I will leave it there and hand it off.

Thank you.

Adam Samuelson from Goldman Sachs.

Thanks. Good morning, everyone.

Good morning.

Just some questions on the guidance of ROIC of 150 basis points over WACC for the agribusiness and food & ingredients for the rest of the year. My rough back-of-the-envelope math says that implies about $330 million of non-sugar [no-pat], or about $450 million in non-sugar EBIT per quarter. And would get me EPS somewhere in the $625 million to $650 million range.

Does that math strike you as reasonable? And if it is, can you talk about the confidence in achieving those levels of profitability in the agribusiness segments over the balance of the year?

Adam, as you know, we don't give guidance. So I want to be a little bit careful here. A and B, when we run this -- [partedly] and particular in agribusiness, one of the key decisions for us is how much to invest in working capital. That is not a fixed number or just a matter of optimizing the number of days.

It's what businesses do we want to participate in or work in? What rate of return are they bringing? That is only to say, we have run the scenarios at a number of net asset levels based on how aggressively we will invest in working capital, anything we won't.

Having said that, your numbers are within a range of possibilities that could eventuate as a way to get there. But I don't want to say it is the most likely case and the only case. There are cases with better asset management than that, that may end up with a little bit lower of a EPS but get you to a higher return, based on what the market gives us an opportunity to do.

Okay, that's helpful. And then on the quarter, I know in the prepared remarks there was some color on the components of the performance. But any way to quantify some of the relative sizes on the impacts from the merchandising activities in China and China soy crush? And the magnitude of those hits to the quarter?

Yes, I think we should talk about it as being variance to what we would consider to be a normal Q1, or last year for that matter. And within agribusiness specifically, we'd say about $140 million of variance is explained by the three areas that are highlighted in the release: China accounting for approximately $30 million; ocean freight roughly $50 million; and the balance is a variance in risk income in our grains business of roughly $60 million. So that's the order of magnitude.

That's very helpful. And then lastly from me, just can you give some more color on your outlook on the China soy crush environment, and why you're so confident that, that market will return to profitability in the second half of the year?

Shipments have begun to slow down, that is number one. Domestic margins have recovered some, as has demand, particularly for poultry. So I think Q2 will be a transition from what was admittedly a very dark place in crush margins in the first quarter.

So by the time we get into July-August and we have reduced pipelines, and demand for protein in China has normalized, I think will return to reasonable margins -- probably margins that are similar to what we had last year in the second half of the year.

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

All right.

Vincent Andrews from Morgan Stanley.

Vincent?

Move on to the next person, and we will let him circle back.

Michael Cox from Piper Jaffray.

Thanks a lot. My first question is on working capital. I was wondering if you could give an outlook just to the extent you are able on your thoughts for working capital as you move through the course of the year?

I covered it a little bit earlier. As we go through the course of the year, if you look at our numbers, you see a normal seasonal pattern that follows the harvest. So the fact that we would have an outflow in the first quarter is not unusual. A lot of farmers in the US defer receiving cash from their grains from the third and fourth quarters into the first quarter for tax purposes. So we usually have that low, and then we start the purchases in Brazil and South America. So the first quarter number was not unusual.

As we move through the rest of the year, there's two factors that define it. One is, we do have a tight working capital management to use as little working capital on normal operations as we can, particularly in our processing businesses.

But secondly, it is an ongoing capital allocation decision that we make, where if we would invest in additional businesses, are the margins and returns in that business high enough or not to have us increase our investment? Or are they low enough that we should decrease our investment in working capital? And we make that decision.

So it would depend a lot as to how the market plays going forward. I think if we look at inventory, and receivable levels go out the rest of the year, we look to take a day or two off of our historical levels. And other than that, it's going to depend on the investment opportunities. Having said that, our base models do not have significant builds or declines in working capital.

Okay, that's very helpful. And then just one last quick one on the PED virus. Any implications to your thoughts on crush margins for the year coming off of that?

Well, it is having a negative impact on soy protein demand. Largely so far, it's been made up for in poultry. But as we get into the summer period now of crush in the US, I think the most important factor determining margins in the US crushing industry will be the availability of soybeans. That will be the driving force behind what margins end up being.

So the demand outlook is probably a little bit weakish. But it is the supply of soybeans that will determine how margins are this next four or five months. And it will be, in my mind, very much a repeat of last year.

Very good. Thank you.

Tim Tiberio from Miller Tabak.

Good morning, and thanks for taking my question. As we look at the sugar business, I am just curious after a rough opening to sugar results in 2014, whether coming out of this just makes you more sensitive on the valuation that you are seeking for the business? Or potentially accelerate your willingness to hold onto the business as you go through the sales process?

No, it really doesn't change our approach to the strategic review. That was decided quite a while ago, and is progressing according to plan. We are pleased with the progress. What happened in Q1, I think, is fully explainable.

And we are confident that we will end up reaching the same end-goal at break-even for the segment, EBIT-wise, as we stated at the last call, and even last year. So it really doesn't play into our considerations there.

Okay. And is there any change in your thinking of whether Brazil will potentially bring back another increase in the blend rate in 2014?

I think it is likely there could be a small increase in the anhydrous blend. But it is unlikely that there will be any major policy changes this side of the election in Brazil.

Okay. And just moving on to -- back to the oilseed business. You quantified the impact within the trading distribution. But I was just wondering how big of an impact -- whether rail logistics in Canada impacted your oilseed business, and how much that was related to canola.

The impact was not significant in our crushing business. It was probably more pronounced in our food business, where we did have delays in shipments as a consequence of very bad weather and rail service.

However, in the Canadian business specifically, we did have a negative mark-to-market impact in our crushing business as margins expanded through the period. I believe that I did mention that at an investor conference sometime in March as being a possible negative variance. And it still is for the quarter, although it wasn't as big as it was at that time.

Great. Thanks for your time.

All right.

Ken Zaslow from Bank of Montreal.

Hi, good morning, everyone.

Good morning, Ken.

So just going back to the hedge loss, the variance of $60 million, you said. Is that relative to variance? Or is that how much you've lost?

The reason I ask it is, I thought typically you actually make money in risk management. So are you trying to figure out if that is just a simple loss? Or is that a variance relative to what you have made last year?

No, that is basically the variance to what we would have made in a normal quarter.

Okay. And then, as I look forward, these three issues should be resolved. Would you consider this quarter's results, excluding those, as a better gauge of ongoing profitability? Is that a fair way of looking at it?

I think, without giving guidance as to what Q1 would be every year from now on, I would say that a normalized Q1 for agribusiness would have been somewhere between $200 million and $250 million. And so I think if you bridge our actual result to the GAAP I just gave you of about $140 million, that's where you end up.

And you can explain the difference in Q1. But clearly as we move into Q2 and Q3 and certainly Q4, for you would expect that the agribusiness segment performance will increase and improve from there. We are confident that it will.

Okay. And then, I think you said that you are re-evaluating the share repurchase after the second quarter? What does that actually mean, and why are you doing it? Why do you actually have to re-evaluate? Why can't you make a decision today?

Well, it just means that we continuously look at the capital allocation framework and determine what is the best will use of the cash we are getting in from our operations. And once we get through this next -- this last piece of the repurchase program, we will look at what's next. That's all. It just means it's a continuous process. It doesn't stop or end. So I'm basically agreeing with you.

To me, my sense is that if you put in place a long-term share repurchase plan, and hypothetically, you made an acquisition or did something else, that would be a good reason to obviously change your share repurchase program. But an ongoing share repurchase plan seems to be a very logical situation.

It could be. What's very important to remember, though, is that our first priority is to keep their credit rating and our balance sheet in a good shape. That is why we don't make too many statements about what we might do at some point in the future. Commodity markets aren't predictable, as we've seen this past quarter. So we want to preserve the flexibility to adjust as we go along.

And then, my next question is -- I'm hoping that it is a rogue news report. But I'm assuming that you guys would limit the size of your acquisitions to more bolt-on acquisitions, given that you would like to actually get your operations in a strategically sound place before you did anything large. Is that a fair way to categorize your strategy, given you've just come into the CEO role?

We don't want to comment on any of the rumors. Whatever we do will be through the filter of our capital allocation process, making sure that whatever we do optimizes total shareholder returns in the best possible way. And that's really all I can say relative to that.

We are very disciplined and very cautious. And we will go through that evaluation every time we think about doing small or big.

Okay. Well, I would bet I would speak for a lot of investors that I think you should get your operations in order before you did anything large. My final question, when I think about the outlook over the next year or so, how much incremental earnings do you expect to get from your CapEx spending?

Ken, our CapEx spending would have a hurdle rate on a cash flow basis at least 1.5 times, usually, our cost to capital. So if our cost of capital is 7, we're talking about 10.5-plus, depending on the risk we would assign to a certain project, is what we would look for. And that would not apply to all of the maintenance investments. So in rough terms, if you would expect a 10% cash return over our CapEx budget, that sounds about right.

Great, I appreciate it. Thank you.

All right.

Christine Healy from Scotiabank.

Thanks, good morning. I have a couple questions to ask you just on the sugar business. You mentioned in your comments that you made some headcount reductions there. I was just curious. Have those strictly been on the mill side of business? Or also are you cutting costs on the trading side too?

Oh, no. Trading is not even considered in this. That's completely separate. The comment is exclusively related to our mills and our agriculture. So what is in the field and what is in the mills -- that's where the headcount reductions have been. That's also where we have the largest number of people employed, obviously.

Our trading business is one that we feel very good about. And we are very happy with the way it's structured and the talent we have in it.

Okay. So the trading business, that has medium return objectives. When you're doing the strategic review, that's strictly on the milling side of the sugar business?

That is correct. Our view on the trading business is that it fits Bunge's overall portfolio well. It is very similar to what activities we perform in agribusiness. It is the same logistics corridors. It is in many ways the same customer base, and the same approach to risk management. So our trading business -- all is equal -- is a core part of our global commodity flow business.

Okay, thanks, that's helpful. And then, can you talk about your operations in Ukraine and Russia, and whether you have seen or expect to see any impact from the political tensions there?

We've had some periods of slowdown, but I would say in general -- and it's difficult to generalize in that part of the world at the moment. But really, both in Russia and in the domestic Ukrainian markets, activities continue more or less uninterrupted.

Our domestic oils business moves along, both in Russia and the Ukraine, in a good way. And even port operations in [Ukulyis], exports of corn and wheat are continuing uninterrupted. So we've had some periods where farmers have held back and not sold as actively as others. But in general, given the level of political instability, operations have continued uninterrupted.

Okay, great. And then lastly, you didn't highlighted in your comments, but just curious if China's rejections of corn and soybean shipments, whether not that brought some extra cost to you.

No. Our performance in China was really just related to the actual crush environment in China in our own facilities. And we were not impacted in any material way of any of the rejections that have been talked about in the wires.

Okay, great. Thank so much.

All right, thank you.

Diane Geissler from CLSA.

Good morning.

Good morning.

I just wanted to get some clarity on the $140 million that you called out on the three items in the first quarter. And just appreciate for me the accounting around freight derivative contracts. It's probably as esoteric as it comes. So I understood from your commentary that the $50 million hit from the ocean freight, is that something that you will recoup, or you won't?

As you said, Diane, we are getting into some esoteric territory here. The $50 million being recuperated, it's not a one-for-one in the way the accounting works. So that $50 million will stay.

But the way we think about our freight is, if we would take our full freight book now -- all the leases we've charted in -- and compare them to market, where do we stand? Are we at market, above market or below market? And right now, our freight costs are about $70 million below market. A lot of that will come in 2015 and 2016, though. Not so much in the rest of 2014.

So 2014 -- with the rest of the year, we think we will be about pretty neutral on that basis, within the benefit coming in the second half of some of those charters we got added there, and the latter part of the charters in 2015 and 2016. And then separate from that is, you've got the mark-to-market on the derivative that can move around in any quarter, and it does come back. But again, it's not a one-to-one match.

I'm sorry for a little bit of that vagueness. It's just that the accounting rules don't fit the -- our ocean freight business that well. And to simplify why that's the case is, you mark-to-market derivatives to market, but you don't mark-to-market your lease contracts to market. So you are marking half of the transaction, in effect.

All right. And then, can you just quantify for me what are the sugar start-up costs that rolled into the first quarter results, that you would expect to appear in the second quarter? Is there an order of magnitude that we should think about there?

It's not precise Diane, but somewhere in the $15 million to $20 million range would have gotten pulled forward.

Okay. And then, did you comment on your -- what is your CapEx budget for the year? Is it -- it's 900 million?

Yes, it's $900 million. It's the way that we described it in the last call. It hasn't changed.

Okay. So that's actually in the appendix of these slides here. Okay, great, I see it here. Okay, thanks so much.

All right.

Robert Moskow from Credit Suisse.

Hi, thank you. I was taking a look at the proxy, and I noticed in the executive compensation that the Board rewarded management for the $250 million gain on sale for the fertilizer business in 2013. I was a little surprised to see that, because it was an economic gain on sale, but I don't normally see that in the results of companies, and how boards compensate.

And I was just thinking, the sugar business is now on the block. A lot of capital has been destroyed in the sugar business. So it would probably be a loss there. Maybe you can't answer this question. But how will the Board treat executive compensation when that business is sold? Will it treat it the same way?

That is really up to the Board, and not something that I can talk to you about here.

And Rob, this is Mark. I would be happy to talk to you about the basis behind treating the fertilizer gain, as it was, offline if you'd like.

Okay. We will talk about it offline. Thank you.

David Driscoll from Citi.

Good morning. This is [Carl Burnett] with a couple of questions on behalf of David.

Good morning, Carl.

Okay, so the first thing, just want to be clear. When I listen to the comments in terms of what the full year is going to look like, it seems that despite the rough patch that you hit in the first quarter, that fundamentally, your outlook for the full year is relatively unchanged. I just wanted to make sure, first of all, if I had that thought correct.

I think you are correct on that.

And then so, in looking at it, if you had that $140 million negative variance in the first quarter, basically a lot of this comes down to the fact that you're seeing, I think, a better environment forming in a lot of your markets over the coming quarters versus what you were looking at previously. Specifically in crushing. I know that USDA is expecting global crushings of oilseeds to increase 5%. A lot of that in 2014 is driven by Brazil and South America, where the numbers are up about 9%.

So I was wondering if you could just talk a little bit about what you're seeing globally in crushing, and specifically in South America, and what type of variances you look to come out of that region versus last year. It was -- I think it was a particularly difficult year down there.

I think both in Brazil and in Argentina, we expect probably two quarters to be quite good, and better than what we had earlier expected. So go back a few months. That is a big positive for us, given our capacity, both in Brazil and Argentina. And as you rightly said, Argentina last year was not really a contributor. So that should be a positive variance for us over the next couple of quarters.

European soy crush, particularly Southern Europe for us, remains a very positive element. That should continue well into the summer. And in the US, I think we will still manage through this summer with reasonable margins. And expect that Q4, like last year, will be very good.

China -- we have talked about it; the next quarter is a transition quarter from very bad to hopefully something a little bit more reasonable, and then a strong last half of the year. So overall in balance, I would say the soy crush environment looks better than we would have expected or expressed a few months ago, for the balance of the year.

And in softseeds, Canada is clearly the highlight. Canadian crush margins are excellent. We've got additional capacity coming on stream, as you know, with a good crop. And I know that planting intentions are strong. So at least acreage in Canada will be up. We should have another big canola crop, and in all likelihood, very strong margins throughout the balance of this year.

The same thing should be the case in Europe, where I know softseed crops -- particularly rapeseed -- are in good shape. They are well-advanced, and they are large. So softseed crush margins, particularly rapeseed, will be very good.

And I think sun seed margins should also be good as we get into the new crop. There is a fairly large overhang of sun seed stocks. Still the need for Europe to be commercialized, and I think they will come as farmers gain confidence about their new crop. So in general, the global crush environment for Bunge looks very positive for the balance of the year.

Okay, very good. Thank you.

All right.

Matthew Korn from Barclays.

Good morning, Soren, Drew, Mark and all. Dig a little bit deep here. Grain trading environment for China. And we've seen Costco buying steaks, and groups like Noble. You know, I've seen some commentary on how that might change some of the competitive dynamic for companies like Bunge, that the implication that the Chinese might be able to be more self-reliant when it comes to ag commodity procurement.

Would you have any concerns of any constructural squeeze emerging as a result of news like this? And if not, why not?

Well, China is a big market, first of all. And one that is clearly privatizing more and more, as it has been stated by Chinese policy. And what Costco has done is fully consistent with their food security ambitions, which is to connect themselves -- at least for part of their supply -- into the global marketplace. And that is not really new. It is been expressed in many different ways over the last year. And so now they've acted upon it.

I think short term, they probably won't change much. Medium term, it could change a little bit. But I'm convinced that Costco will want to remain closely connected to companies like ourselves and others. Costco is a big customer of Bunge today, and I suspect that will be the case also a year from now. So I think it will be a mix of both.

All right. What's also [wrong] with China, we've seen so far this year a combination of bird flu and depressed pork prices, and the impact there on the demand side for feed and meal. I know your takes probably on the supply side, that the Chinese are front-loaded to ensure against any kind of re-emergence of Brazil logistics issues. On the demand side, are there any things in particular -- any things that you can point to that give you conviction of an upturn in the second half of the year?

Other than off take from our own crushing plants -- I mean, that's typically the best way of gauging how demand is evolving both for protein and oil. So when you look at the customers that we do business with every day -- and we deal directly with customers. We don't go through intermediaries in China. We can sense whether things are slowing down or speeding up.

And frankly, the off take has been probably better than you would expect, given the negative press around margins in China. So our team and our customers, frankly, reflect that things have probably bottomed out and are now improving again.

All right. And then last, this more dramatic. And maybe I'm thinking about this in an unsophisticated way. But the message has been, I think, from you over this past year and [freakin] long for years, that you believe in your approach to risk management, that you know you can't get all the bets correct. Volatility is inherent with the operations of the business.

And I know that the pain always feels more acute when you have particular quarters and current events like this. But you're moving seemingly to reduce volatility over a lot of the core businesses. You're getting more downstream; you sold off the fertilizer assets.

Is there anything that you could do or that you would do to reduce the amount of agribusiness income at risk when you have moves like this? Particularly when you have such a positive underlying environment -- you see that emerging over the rest of the year?

Because the concern always will be that we see the trends, we see the trends in crush margins, and we see the trends in flows. But there's always the aspect that, that can get lost in the noise of potential risk management work in the wrong way.

I think in any given quarter, that is just a fact. I don't think that will ever disappear entirely. That being said, we always go back and review and look and see if we could have done things differently or better. And we will do that in this case, as well.

But fundamentally, I am absolutely convinced and supportive of our process, not only to economic analysis, but also risk management. It's proven, it's right, and delivered good returns for really many years, and many quarters.

And so we are having to live with some of the volatility that is inherent quarter on quarter. But year in and year out over the last many -- our agribusiness risk management team and economic analysis teams have really delivered the goods for us.

So can we improve? Yes, of course we can. And we always look to do that. But I believe that we have got the right structure and the right process in place.

The other way that we can and we are aiming at, let's say, reducing some of the risk in earnings, is to grow the share of food & ingredients in Bunge. And if you say that today the share is somewhere between 20% and 23%, I think we've stated that getting to 35% is our objective.

And we can do that in many different ways. Part of it is just improving what we've already got. And part of it is by adding on pieces like what we've done with Altex. That should help the mix over time as well, and that should help reduce volatility in earnings.

So I think the combination of those two things will get us in a better place. But we will never eliminate the quarter-on-quarter volatility in what is an agricultural commodity business.

All right, thanks much, Soren. I'll pass it along.

All right, thanks.

Vincent Andrews from Morgan Stanley.

Thank you. And I'm sure I was in the queue earlier. I unfortunately had four calls between 10 AM and 11 AM. If somebody answered this, I can just go back and read the transcript later.

But I was just wondering if you talked at all about your expectation for soy crush margins as the Argentine farmer begins to release all these pent-up beans. Are you anticipating any sort of degradation in the crush outlook?

Vincent, I think we answered it. But just a short recap. I think overall, the soy crush margins overall for Bunge and for the balance of the year, we feel on balance will be favorable. We feel very good about softseed margins, particularly in Canada, but also in Europe, as a new crop now begins to materialize. So overall, crush in both soy and soft should be good for the last and next three quarters.

As it relates to Argentina specifically, that should be a highlight for us over the next quarter or two at least. Last year Argentina didn't contribute much for reasons that you know. But we got a good crop, and the farmers only commercialized roughly 20% of the beans so far. And margins are good at the moment. We should be able to secure a nice couple of quarters of soy crush in Argentina.

And then the real question is, to what extent will the overhang of soy beans have an impact on US crushing margins in the last quarter? And that's just too early to tell. A lot of that will depend on the political environment in China, and how farmers and the population in general looks at the economic situation.

All else equal, I would say chances are that there will be a fair amount of retention again in Argentina as we go into the end of the year. But it's too early to tell.

And as a follow-up on Argentina, there's the potential obviously for the change in government there, as well is in Brazil. And I'm going to assume that either or both, you would assume would be positive for you. But could you just discuss that in any further detail?

I don't really want to comment on the politics in Argentina. But I believe the election is two years from now. It's not this year, it's next year.

Yes, it's next year.

Yes. So I don't really want to get into that. We know that our business is important to both countries, and we feel comfortable operating in virtually any environment.

Okay. Thank you very much.

Thank you. I will now turn the call back to Mr. Mark Haden for closing remarks.

Thank you, Lorraine. And thank you, everyone else, for joining us this morning.

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