Bunge Global SA (BG) 2017 Q2 法說會逐字稿

Good day, and welcome to the Bunge Limited Second Quarter 2017 Earning Release and Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Mr. Mark Haden of Investor Relations. Please go ahead.

Thank you, Allison, and thank you, everyone, for joining us this morning. Before we get started, I want to inform you that we've 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 additional or 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 Tom Boehlert, Chief Financial Officer. I'll now turn the call over to Soren.

Thanks, Mark, and thank you, everybody, for joining us.

The second quarter was profitable across all seconds -- all segments with good performance in Foods and Sugar, but overall, below expectation as Agribusiness lagged well behind its historical range.

Oils did well globally with important customer wins and growth in added value. We're building a leading platform in B2B oils globally, a market segment that continues to grow at 3% per annum, and with increasing opportunities for Bunge to differentiate in the eyes of customers and consumers.

Milling offset some of the gains in Food & Ingredients, and significantly lower flour demand combined with increased competition from the unusually large domestic wheat crop in Brazil, weighed on both volumes and margins.

In Mexico, volumes were on track, but margins were compressed as higher wheat prices were difficult to translate into flour in local currency.

We built a powerful milling footprint, which will be a differentiating advantage for Bunge, and we are confident that the business will do better in the second half of the year as market conditions improve and some of the actions we're taking go into effect.

Our Sugar Milling business performed well and with most of our production hedged and favorable weather, we're on track to meet our financial targets for the year.

Agribusiness was the challenge and warrants a look back. How could record crops and strong demand translate into multiyear squeeze on margins? I'll try to summarize.

In Brazil, industry soybean export programs were committed to early in the year on the expectation that the large and mostly unsold crop would be sold in heavy selling pressure during harvest. Take-or-pay commitments were made throughout the industry with freight and terminal providers to support the large export programs.

Commodity prices dropped during harvest. Farmers held back selling and used all means to store their crops -- in silo bags, at cooperatives, through commercials, and on farms.

To highlight how slow the movement was, this was the first time domestic transportation cost in Brazil decreased as the harvest progressed.

Brazilian export and crushers, therefore, fell behind on procurement and had to compete aggressively for bean origination in order to fulfill commitments. This eroded origination margins to about breakeven and crush margins to about forecast.

In Argentina, the industry also expected active pricing at harvest and the crush industry placed export sales of soybean and oil in anticipation.

As harvest progressed, farmers became reluctant sellers as a combination of lower dollar prices and a stronger peso made local prices unattractive. Cheap financing and ample storage in the form of silo bags further encouraged farmer retention. As a result, the crush industry could not keep pace with pricing versus their export commitments, which led to a squeeze on crush margins to between variable and forecast for most of the quarter.

So as a consequence of these events, the commercial Agribusiness industry handled the record South American crop with little to no contribution margin, which is obviously not sustainable.

The size of this mismatch between farmer pricing and the industry commitments is unprecedented and challenges the traditional wisdom of farmer marketing patterns.

We believe in the return to more historical margins in both crush and grain origination, and industry leaders like ourselves have to be responsive and manage capacity actively as margins are pressured. This also means creating more flexibility and logistics and servicing farmers with even more compelling offerings of crop inputs, price risk management, financing and logistics, so a larger share of the crop can be committed in advance of harvest.

There's no question that consolidation in parts of our industry is warranted. We feel that the regional partnership route to consolidation is an effective way and we'll continue to lead where possible as we have successfully in the past.

The next 6 months will show significant improvement in Agribusiness earnings. By now, most logistics and export commitments in South America have been fulfilled and with more -- and with 30 million tons more beans and corn to be priced than last year, we expect an active second half in South America, which should lead to a gradual improvement in margins.

Forward North American crush margins are good and softseed margins should develop in a positive way, given record canola and rapeseed crops and strong demand for sun oil globally.

We expect South American and European crush margins to gradually improve as global meal inventories reduce, and in China, we expect a good fourth quarter when supply and demand comes into better balance as it did last year.

Our Milling and Edible Oils businesses will show improvement in the second half, partly due to seasonality and we have the 2 strongest quarters in Sugar Milling in front of us.

Overall, we expect a better last half of the year as compared to the prior year, which should give us good momentum going into 2018.

Medium and long-term industry fundamentals remain positive and growth in capacity utilization, especially in crush, will drive margins higher.

Our views regarding forward margins and volume growth in both Agribusiness and Food remain very positive, but we will not only wait for margins and volumes to lift earnings. Just as we are finding new ways of interacting with customers at both ends of the value chain, we're also finding new ways to become more efficient in how we operate. We have challenged ourselves on industrial cost, which have delivered improvements of $43 million to date and approximately $300 million since 2014.

We are now taking on the same challenge with SG&A, which is what the Competitiveness Program is all about, to step-change how and at what cost we operate.

We're committed to realizing the $250 million SG&A run rate savings by the end of 2019 without compromising how we service customers and the good work environment inside of Bunge. The program is just getting standard as Tom will explain later.

Bunge's strategy is clear and we are convinced we're on the right track. Agribusiness is core to our strategy and we'll continue to grow our portfolio further downstream to generate more earnings from value-added products.

Growing earnings and growing products and growing Bunge remains our priorities and we have the ingredients to make it happen.

So with that, I'll turn it over to Tom for details on the quarter and the outlook for the year.

Thank you very much, Soren, and good morning, everybody. Let's turn to the earnings highlights on Slide 4.

Reported second quarter earnings per share from continuing operations were $0.48 compared to $0.81 in the second quarter of 2016.

Adjusted earnings per share were $0.17 in the first quarter versus $0.79 in the prior year.

Total segment EBIT in the quarter was $73 million versus $205 million in the prior year; and on an adjusted basis, segment EBIT was $79 million.

The Agribusiness had a weak second quarter with EBIT of $18 million compared to $180 million in the second quarter of 2016. This resulted from a $54 million decrease in Oilseeds and a $108 million decrease in Grains.

Global crush volumes were slightly higher than in the comparable quarter for the prior year, but the increase was more than offset by weaker margins. Margins were negatively impacted by slow farmer selling in South America and ample supplies of soy meal.

Results were also negatively impacted by $11 million of mark-to-market hedging losses in the quarter compared to a mark-to-market gain of $40 million in the same period a year ago.

Softseed volumes were slightly higher than a comparable quarter last year, but the increase was more than offset by weaker margins. Higher volumes reflected an increase in our crush capacity in the Ukraine.

Margins were lower because of tightness of seed supply in Canada and Europe, weaker oil demand in Russia, and lower imports into China. The decrease in grains was primarily the result of weaker results in origination and distribution.

While volume increased primarily in the U.S., margins remained under pressure in South America and in destinations with customers only covering short-term needs.

Overall, Agribusiness results were lower than a comparable period last year primarily as weaker margins and negative mark-to-market impacts were only partially offset by higher volumes and improved risk management results.

Food & Ingredients EBIT increased by $9 million to $44 million in the second quarter of 2017 compared to $35 million in the second quarter of 2016. The increase was attributable to the fact that the second quarter of 2016 included a $12 million mark-to-market loss in Edible Oils. So backing that amount out from last year's result, Edible Oils improved by $14 million while Milling decreased by $17 million.

Edible Oil's results improved across all geographies with particularly strong results in Europe where higher volumes and margins were partially driven by recent acquisitions.

The decrease in Milling EBIT was primarily the result of lower volumes and margins in Brazil and lower margins in Mexico. Brazil has been impacted by lower consumption and competition from smaller regional mills; and margins in Mexico were lower than in the prior quarter due to softer market demand resulting from economic pressures.

Sugar & Bioenergy quarterly adjusted EBIT was $14 million versus breakeven in the prior year. Our mills increased production over the second quarter and will peak in the second half of the year.

Fertilizer EBIT was $3 million in the second quarter compared to $2 million in the second quarter of 2016. Volumes and financial results will increase as the planting season now gets underway in Argentina.

The quarterly results included $51 million in foreign exchange gains, most of which were hedging gains that are offset by losses in the gross profit line.

First half tax expense was a benefit of $27 million. Backing out the notable items totaling $49 million, the first half tax expense would have been $22 million, a 20% effective tax rate.

Based on our forecast mix of earnings and discrete items, we now expect our tax rate, for the full year, to range between 18% and 22%.

Let's turn to Slide 5 in our cash flow highlights. We generated $1.2 billion of adjusted funds from operations in the past 12 months, demonstrating our ability to generate substantial cash flow over the course of the year.

Let's go to Page 6 on our capital allocation process. Our top priorities are to maintain both a BBB credit rating as well as access to committed liquidity sufficient to comfortably support our Agribusiness flows. We are BBB rated by all 3 rating agencies and have $1.4 billion of available committed credit at the end of the quarter.

Within that capital structure and liquidity framework, we allocate capital amongst CapEx, portfolio optimization and shareholders in a manner that provides the most long-term value to shareholders.

We invested $342 million in CapEx in the first half, of which $103 million related to the Sugar business primarily for sugarcane planting and productivity improvements.

We invested $394 million in acquisitions, the most significant of which was the acquisition of 2 European oilseed processing plants in the first quarter. And we paid $135 million in dividends to shareholders. We repaid $850 million of notes that matured in the second quarter and expect to close on the Minsa transaction later this year.

Let's turn to Slide 7 and our return on invested capital. Our trailing 4-quarter average return on invested capital was 5.5% overall and 6.1% for our core Agri and Foods businesses, 90 basis points below our cost to capital.

Our goal is to earn 2 percentage points above our cost to capital on the Agri and Foods business. The decrease in return from the first quarter was a result of lower EBIT quarter-over-quarter.

Let's turn to the 2017 outlook on Slide 8. In the Agri business, soy processing and origination margins have been below our expectations to date. We do expect margins to improve as farmer selling picks up and customers replenish pipelines. However, as a result of this delay, we are adjusting our full year 2017 EBIT range to $550 million to $650 million, weighted to the second -- to the fourth quarter of the year.

The change reflects the lower results from Q1 and a modest reduction in forecasted margin assumptions for the balance of the year.

We expect the Food & Ingredients business to continue its upward momentum in Edible Oils and show strong year-over-year improvement in volumes and margins. However, based on weak first half results in Milling, anticipated soft consumer demand and challenging competitive environments in Brazil and Mexico, we are further adjusting our full year 2017 EBIT range to $210 million to $230 million with results weighted to the fourth quarter.

At the start of the year, we expected Edible Oils and Milling to contribute roughly equally to the Food & Ingredients result for the year. While we're on track in Edible Oils, we now expect the Milling result to be approximately half of the original expectation.

Turning to Slide 9. We expect the environment for sugar and ethanol to remain positive and, combined with the efficiency investments made in recent years, to result in adjusted EBIT in a range of $100 million to $120 million this year. A substantial portion of our sugar production is hedged at a level that supports this outlook.

Similar to past years, results are almost entirely generated in the second half of the year with the weighting to the fourth quarter.

We expect Fertilizer EBIT to be approximately $25 million for the year, which would be earned primarily in the second half, corresponding to the planting season in Argentina.

We expect our CapEx this year to be in the range of $700 million to $750 million, and we plan to reduce CapEx in 2018 to approximately $650 million, roughly $150 million of which would relate to the Sugar segment.

Moving to Page 10. We announced the Competitiveness Program a couple of weeks ago. The program is focused on reducing our cost base and simplifying our organizational structure to drive efficiency, enhance our ability to scale the company, and realize significant additional value from our global platform. We plan to achieve an annual run rate reduction in costs of $250 million by the end of 2019 through reducing spending across many categories globally, implementing zero-based budgeting, streamlining our head office, regional and country operating structures, and consolidating activities through the use of shared services.

The actions we're taking represent a very significant change in how we will operate and our design to support our strategy and growth going forward.

The reductions will be roughly split equally between indirect spend and organizational changes and would reduce our addressable SG&A from a 2017 forecast rate of $1.35 billion to $1.1 billion by 2020.

We expect the SG&A impact this year to be marginal and that we will realize savings of approximately $100 million in 2018; $180 million in 2019; and achieve full run rate savings of $250 million by the end of 2019.

The total cost of the program, excluding -- including CapEx, is estimated to be approximately equal to 1 year of run rate savings, plus or minus 20%. We will track the impact of the program and SG&A to demonstrate both progress and sustainability. And when doing that, we will look to isolate the impact of the program from other SG&A factors such as foreign exchange, inflation, variable compensation, and changes resulting from acquisitions and divestitures.

Some of the savings generated to the program will be reinvested in the business, in Edible Oils, and in developing innovative products and services to strengthen our relationships with farmers and downstream customers. And some of the savings will fund acquisitions and return of capital to shareholders, all in a manner that provides the greatest long-term value to shareholders and maintains a strong investment grade credit rating.

We will now open the call for questions.

(Operator Instructions) And our first question will come from Ann Duignan with JPMorgan.

My question, I think, this morning, because you gave good color on the Agribusiness, is around Sugar. Can you talk about how we should be thinking about sugar EBIT into '18 given that you were hedged in 2017?

Yes. I would say roughly in the same range, maybe a slight reduction, depending on how ForEx and sugar prices turn out for the balance of the year, but the recent change in the fiscal -- tax regime in Brazil is certainly an upside in ethanol pricing that could compensate for a slightly lower [New York 11]. So roughly the same range for next year, but it's a little bit too early to tell.

Okay, I appreciate that. And then you did mention variable compensation. Have you lowered your outlook for accrual for variable comp for 2017? And if so, how much has that impacted your financial outlook?

Yes, I don't have that number in front of me, but we adjust that on an ongoing basis.

So it would be a positive for 2017?

Yes, it would be. Sure. Yes, I mean, all else equal, right. Yes.

Our next question will come from Adam Samuelson with Goldman Sachs.

Maybe first, Soren, on the outlook on soy crush. Certainly, I think the downturn and the weakness that you see in the market year-to-date and even in persisting into the third quarter is far worse than we would have thought 6, 9, 12 months ago. Can you talk about some of the residual competition from feed wheat, the residual competition from other competing proteins, the demand outlook? Is it really just a basis issue on beans in Brazil and Argentina? Just help me think about the pieces and the path to getting these margins right side up by the fourth quarter, all the while board crush hasn't been that bad.

Right. Okay, that's a lot to answer, but I'll try. I think the feed wheat impacts on mill demand and rations is behind us. Wheat prices have rallied significantly and you can see the changes in formulation. The impact on corn and ethanol by-products, DDGS, is probably more of an issue, but also that is probably peaking. China is the biggest -- the biggest variable in that equation having essentially prohibited or stopped imports of the material back a while ago and that amount of DDGS has backed up into the global trade system and even domestic demand in -- or domestic consumption in the U.S. and that has eaten on the fringes of soybean meal demand. But I think that is also now more or less fully, fully digested. Overall, protein demand for feed remains very strong, whether it is in Asia, Southeast Asia, domestically in the U.S. So the baseline is healthy. It's really a matter of how the industry adjusts run rates to match with meal demand at the moment. We still have an industry that, when everything runs at full speed, can produce more than the market needs. We're gradually eating our way towards a better capacity utilization, but when everything runs at full speed, we produce too much. And that is what's happened in South America before 6 months of the year, which is what I was trying to illustrate earlier on, that the industry went far too fast in anticipation of a much more willing farmer selling. And as a result, we have built a couple of million tons of soybean meal inventories, partly at the origin, partly at destination, that is weighing on margins and we have to consume or eat our way into that through more disciplined and reduced crush rates over the next -- really the next quarter to get back into a better balance and for margins to rebound to that $25 to $35 per ton level that we had in our original forecasts. I think that's happening. The industry is adjusting. You're right, the actual realized margins for the first 6, 7 months of the year have been well below where they should have been and where we anticipated them. The industry is adjusting and so are we. The U.S. has sort of -- has been the exception where good industry discipline, strong domestic demand and ample supply of soybeans and a willing farmer selling, has held margins at the $30 to $35 level and board crush at $0.95 to $1 in the fourth quarter, really reflects that and reflects much more the domestic U.S. market, which is where the predominant amount of product goes from U.S. crush and it reflects global margins. So we think that will hold and we think the rest of the world will come up towards that level as we get through the third quarter and into the fourth.

That's helpful color. And then maybe just a question in Agribusiness in Brazil. In the prepared remarks, you alluded to looking to increase intimacy levels with farmers in terms of risk management, input sales, et cetera. You used to do a lot of those things in a bigger way when you had the Fertilizer business. Is that -- should we take that as an indication that you need to really commit more financial capital to engage with the farmer earlier in the planting process? Or how should we think about the commitment of capital to those endeavors?

Yes, I don't think it will mean any increase in capital from Bunge's side and we have continued with our, let's say fertilizer marketing and barter activities in Brazil, even after we sold the business in a partnership with Yara. So that's working very well. We would like to step that up and we would like to create similar structures with other input providers, and we are doing that but it is on more of an informal basis. I think there's room to do something more -- more structural on that front, but it would not imply Bunge committing more capital. It's simply connecting the dots to the farmer and coupling that up with risk management tools, which we have, that would allow the farmer to move his crop during harvest and still retain upside, whether it's from ForEx, whether it's from global prices, postharvest, so that the farmer doesn't have to sit with the physical inventory for extended periods of some time and would hopefully help create more liquidity and more fluidity as harvest progresses. There are many things we can do and we are doing them in pockets, so this is not something that is entirely new for us. But we feel that we can step it up and sort of create a new and enhanced approach to origination with all those things bundled together.

Our next question will come from Heather Jones with Vertical Group.

First, just a details question. Clearly, this environment has been very much in flux and so I'm -- nobody will hold you to this, but based upon your view of the outlook right now, when you say weighted to Q4 for both the Food & Ingredients and Agribusiness, are we looking at something like 3/4 of your second half performance will be in Q4? I mean, is it that heavily weighted?

I would -- Agri is the big question mark, obviously. If you talk about Food & Ingredients and Sugar alone, I would say it's probably a 60-40 split between the 2 quarters. Ag can really be -- I wouldn't say all over the place, but it's probably about the same proportion at this point: 2/3 in the fourth quarter and 1/3 in the third quarter. But it can change very quickly. We know that August and September are the months where a lot of origination takes place for a new crop in South America so many things can trigger a sudden acceleration, let's say, in Agribusiness. We still have a good part of the growing season in front of us in soybeans; in the U.S. the crop is not made yet. So a lot of things can change, I mean even from early July until to now, the environment have changed quite a bit. The first 2 weeks of July were fantastic and the last 2 weeks have been more meager. It's very volatile, frankly, in Agribusiness. So we are confident that we'll get the bump in earnings, the structural margins should be there. We have a lot of pent-up selling left in South America and a good U.S. crop, but exactly how that part flows remains to be seen. I would say 2/3, 1/3 is probably the best guess at this point.

Okay. And secondly, if we assume that countervailing duties are imposed in the U.S. upon Argentina, Indonesia biodiesel imports and also the EU reduces its duties on Argentina imports, and so those start flowing there again, what is your best estimate of what that means for North American crush margins? Because to meet the mandate and all, there seems like there would have to be a really, really dramatic increase in domestic biodiesel production, which would seemingly have a very significant impact on crush margins. So one, what is your best estimate, what that would mean? And secondly, if the EU reduces its duties and Argentine biodiesel starts flowing to the EU, that would seem to mitigate some of this impact on Argentina for you guys. So I'm just wondering if you could hypothesize for us, just to get a sense of what that kind of scenario would look like for you guys.

Yes, I think you're right. There would be a net positive to U.S. crush, both canola and soy crush, in this mix. Not easy to estimate exactly how big it would be and when the impact would be felt. Will it be this year or will it be next year? Part of it would probably be this year. Net-net between Argentina and the U.S. I would say a small positive, but not a game changer; $10 million, $20 million, something like that. And in Europe, you're right, a reemergence of the flow of Argentina to Europe would be a positive for the Argentine biodiesel industry. We're also invested in European biodiesel so that would take the opposite side of that, that's probably a net neutral. But if you add it all up together, the best guess at this point would be a modest plus for us and the size of the impact in this year would -- depends on when the changes come into effect, but I don't it is a material difference.

But you said -- I think I heard a number -- so it sounds like you would think maybe $10 million net positive to Bunge on a full year basis?

$10 million to $30 million, somewhere in that range.

$10 million to $30 million?

Yes.

Our next question will come from Farha Aslam with Stephens.

Can we talk about your Milling business? Historically, it's one of your more stable businesses, but this year Milling was cut in half, in terms of expectations. Could you share with us kind of the consumer outlook in both Mexico and Brazil, and perhaps when that could recover?

Yes, happy to. In Brazil, which is really where the biggest change has been, we are seeing signs, both in terms of unemployment and also retail sales, that the economy in all likelihood has bottomed out. So the impact at the consumer end should be positive going forward. But in the meantime we have seen a fairly dramatic cut in consumption of flour-based products, whether it is through food processor sales or whether it's through food service or even household consumption and that will take some time to recover. 13% unemployment rate is not small. So I think it'll be with a lag that we see the improvement in flour consumption in Brazil and probably don't expect any real impact until early next year. The thing that has weighed on Brazilian Milling margins, as much as this decrease in overall consumption, has been the size of the domestic crop. We had a very large and high-quality domestic crop this past year, which we don't think will repeat itself and that allowed many of the smaller and very fragmented mills in the southern part of Brazil to compete and market flour into the central part of Brazil and even to the north, and that pressured margins in our business, which is mostly based on imported wheat. We think that will change as we run out of old crop wheat stocks towards the end of this year. So I think the real impact on improvement in Brazil is probably not to be seen until the first quarter next year, although we do expect a sequential improvement from the first half into the second half, but sort of getting back to more normal run rates of earnings, we're talking -- we're probably talking 2018. In Mexico, it's not so much a matter of per capita consumption as it has been difficulties in translating the higher wheat prices and the wheat currency into higher flour prices in the domestic market. That's taking longer than we expected, but I would think that by the fourth quarter, it will be back to the normal run rate. So Mexico should be back to where it was, where it should be, by the first quarter of next year. So the second half will be better than the first half in Milling, but it won't be back to the historical run rate. We will have to wait until the first quarter of '18 for that.

That's helpful. And then you highlighted in your prepared remarks that consolidation is needed and you believe it's going to be via regional leadership. Could you share with us some more color on consolidation and how that regional leadership would work?

Well, I think we have some examples in the last couple of years, but really, if you look back at our history, it goes much longer. Many of our activities in Argentina, for example, on joint partnership -- the same in Paraguay last year, we formed the joint venture with AMAGGI in Brazil, which in many ways accomplishes a type of consolidation by sharing common assets. We did the same with Wilmar in Asia this past year. And we're looking to do more things like that, whether it's really a win-win, a quick win-win and a fairly straightforward way to achieving rationalization and better utilization of existing assets in all the regions including the U.S. So those are examples of what I'm talking about. They can take any shape and any size as far as I'm concerned and we're out looking for them and discussing them on an ongoing basis.

And do you think you can get to kind of what you think is a normalized run rate of profitability without further large consolidation in Agribusiness, where you actually have capacity taken out, to address this oversupply situation?

Yes. We believe we can do that and we believe -- soy crush in particular has some very strong fundamentals that should start showing themselves as we get into 2018, so we are very convinced about that. But the Competitiveness Program that we have initiated now is a way to accelerate towards that goal. It's self-help in a period where the industry is not behaving as we think it should, although the fundamentals, medium, long term, are very favorable. So we believe that, that will be an accelerator towards the earnings growth that we all have in mind.

Our next question will come from Vincent Andrews with Morgan Stanley.

Soren, is there sort of a sweet spot range of soy prices in BRL-USD exchange rates that you guys sort of identified, anticipating a large inflow of farmer selling. Has it been that dynamic that you sort of can look at your screen and see that intersection and expect the flows to improve? And if so, could you help us with a rough range, just so we can sort of be able to monitor that?

I can give you a range the way it is right now, but with a caveat that it could very well change, in all likelihood it would change. But the combination of let's say a dollar-real between 2.25 and 2.35 and soybean prices in Chicago above $10 is what created the last big movement that we saw early in July. And it was quite significant and farmers are very responsive in that range at the moment. The other thing that's important is that the barter ratio, so the ratio of prices between crops and fertilizer and crop protection and so forth, is actually pretty reasonable. It's been better within the last 4 years; so when farmers make their planting decisions now in September, they will be looking at a favorable relationship between inputs and crop prices, even if the soya price or the local price is not reflecting the range that I just gave you. So it's a relative value play of inputs to outputs, and that's why we are convinced that we will see another big crop planted in South America and Brazil and even a small amount of growth, even if the current price isn't so sexy, so to speak. Those are the 2 things to keep in mind, the barter ratio; and then there are some triggers in the combination of futures and the exchange rate that generate big movements and they are, as I just told you now -- that may change as we get towards the end of the year. And I think in particular, as the world becomes, let's say, comfortable with the size of the U.S. crop and the outlook, maybe those ranges will ratchet down a little bit, but that's where we are right now.

Okay and just as a follow-up, I thought your commentary was interesting on going out and sort of improving the relationship with farmers. And it made me wonder, do you think part of the objective is going to be, if you try to get the farmer to sell in a more regular basis, do you think it will narrow sort of your range of margin outcomes? In other words you might give out some of the upside in a super tight market, but you might reduce the probability of scenarios like this, and ultimately, find yourself in a tighter, more predictable per ton margin range if you're able to execute some type of better, sort of more regular flow of product?

Yes. I mean, we look at it. I mean, we're in this with the farmer and the farmer has always been as important of a customer to us as any of our downstream customers. We look at it that way. And we need to find ways that satisfy the requirements of the farmer and at the same time, allows us to run an efficient operation, earning a reasonable margin that gives us a return. And I think that is possible to do what the -- all the various things that we're able to bundle in front of the farmer now. And with the use of technology, that should be our objective and it is our objective, to sort of reinvent the way that we go-to-market with the farmer over time. Each region will be a little bit different, but it is a big priority for us. And as we do that, you could take out some of the volatility that we've seen and maybe the way you describe it, the upside is a little bit less, but it's more stable. But I think it will always remain very volatile, that part of the business. But having gone through this past period, it is certainly healthier for the industry, and I think even for the farmer to the extent that it's possible to combine inputs and maybe some of the risk management products, that a larger portion of the crop is somehow committed through the system, whether it's through export or through crush, before you get into the seasons. So you're not -- the system is not so subject to the various types of volatilities, whether it is exchange rates or Chicago or even logistics, and you don't get the disruptions and the stop and go that we've seen this past year. So that would be an objective, no doubt.

(Operator Instructions) Our next question will come from Ken Zaslow with Bank of Montréal.

This may not be a 100% fair question, but I figured I'd give it a shot.

Sure.

In December, you put together your vision for Bunge for the second time. The first time you did it, it kind of fell short or did not meet expectations. The new plan is not off to the strongest start. Can you talk about the potential to revisit, to reach your plan and how does it play out in 2018? Do you get less confident in how you're developing the plan? And will we see noticeable changes in 2018 and can you frame 2018 for us?

Well, I have -- there's no lack of confidence in our plan and the plan we presented in December is intact. The headwinds we faced in the first half of this year have been industry headwinds, and we have, of course, had our proportion or share of that. Given our exposure to South America, I think it's all reasonably explainable. But the long-term dynamics of soy crush, which is the one big pillar, is absolutely intact. I have no doubt about that and that will -- we will see that as we get to the end of the year and into next. And our commitment to growing our Food & Ingredients business is complete. We have seen great success and improvement in our global oils business, which is the one that is more tightly connected with the rest of the Bunge network with crush and origination; very confident that we can grow that in a significant way. And then we have the Competitiveness Program, which we had started orchestrating already back at the end of last year and it's taken shape now, as a means to accelerate or at least create a buffer in the period of times where we may -- we may be falling short on expectations because of industry headwinds. So all of that combined gives me great confidence that we're on the right track. As for 2018, I would prefer to hold those comments until the third quarter, but clearly in Food & Ingredients, we would expect a significant improvement from where we are today as milling recovers. Oil has done what we expected it to. And a return to more normalized Agribusiness types of earnings but the range of that I think is a little bit too early to predict given that we haven't completed the U.S. crop yet, so I'll save that for Q3.

Okay. And my other question is, again, probably not in the fairness category, but I'll give it a try. How do you value Bunge's stock, particularly given the noise around it as well as your performance? How do you think about how you think of the value of Bunge's stock?

Well, I won't give you a number, Ken, but we have, and our board has, a very good sense of intrinsic value of Bunge based on, obviously, our own plans and various methodologies of deriving value. One thing we all agree on is that it's undervalued relative to its potential, so I'll leave it at that.

Our next question will come from Sandy Klugman from Vertical Research Partners.

Could you provide some color on what you're seeing for the softseed crush? You've had some dry conditions in Canada and the Dakotas; some wet conditions in Europe that could impact the canola harvest? And I was wondering how this impacts the outlook.

I think that's all considered within the range that we have given. We have a very large canola crop in the ground, I think it's a record. And had ample moisture early in the season, now combined with some dryness. It's hard to tell whether we take the yields down a little bit. But overall, it's going to be a very large crop and likely as large, if not larger, than last year. And in Europe, Poland, where we are exposed to -- we have a big crushing activity in Germany as well -- have had, already had, a nice rebound in canola and in rapeseed production. So the combined rapeseed, canola crop is up significantly from last year and that should be favorable as we get into the third and the -- well, the end of the third quarter and the fourth quarter, for sure. Some seed production on the other hand is down a little bit from the prior year, but last year was an all-time record. I think we're off 1 million tons, but still a very large crop in historical terms. And I'd say the outlook for margins in Hungary and in the Black Sea are favorable.

Okay. And then I just wanted to clarify, how much of the benefits of the Competitiveness Program are factored into the 2017 revised segment guidance? And how should we think about the allocation by segment?

Tom?

The expectation for '17 is fairly modest, about $15 million. And it's not actually fully baked into the forecast yet, but it is small. Going into 2018, we expect to realize $100 million; and into 2019, $180 million. So we really start to pick up steam into next year, based on the indirect spend programs that we'll implement over the balance of this year and then further into 2019 as we start to implement the organizational changes over the course of next year.

Our next question will come from David Driscoll with Citi.

I had 2 questions. The first one is pretty simple, straightforward. Sale of the company, is this something that is actually possible or at any price? Or is it just fundamentally against kind of the desires of management and the Board of Directors? Just curious on what you can tell us here, given obviously the news flow during the quarter.

Yes, I mean it's fairly simple in the sense that myself and the board takes our responsibility towards shareholders very seriously. And of course, we'll evaluate the best path. And that's it. So there's no entrenchment if that's what you refer to.

That's exactly what I'm referring to. I just wanted to ask because I get asked that question repeatedly. And then the next question I get asked, and this is going to build on a lot of that's gone on in the call here, but I want ask it in a certain way. So you were clearly very positive at the Analyst Day. And then I would just state the obvious for you guys, but maybe not so obvious for some investors listening, this is the biggest Agribusiness company in South America. So I mean, just fundamentally, how does a giant sophisticated industry, including Bunge, get caught so short on basis in South America, just misjudged this so enormously? I mean, it's been very, very rare, I mean I've gone through -- you know I've covered you since you became public, to see 2 really disappointing quarters in a row. I mean, I can't remember a time in recent history where we've seen that. So there's all these really specific answers you guys are giving about farmer selling and so forth, and I'm just curious, like number one, do you really find like Bunge's performance in the quarter acceptable given how big and important a player it is? And then, what changed in the years? When I did this company back in 2002, 2003, advances to farmers and the fertilizer barter transactions were a really big deal in South America, and I think it gave you a lot of assurances that you would have crop come to harvest. But something feels off here. But would love just to hear your kind of big picture thoughts on your opinion on the performance of the business to date, what you expect out of it and what changed.

Well, that's a lot of questions in one question, David. But I think to start out with, are we happy with the performance? Are we satisfied with the performance in the first couple of quarters? And the answer is, no, we're not. I think we didn't make any mistakes. The margin environment was what it was, but we're obviously not satisfied. I think the one thing that is different in this last 6 months, as opposed to prior periods, is that the entire industry got on the wrong side of, let's say, the expected farmer selling in the record crop, but I don't think it was an issue of being short to basis as you referred to it. It was really more being short against other types of commitments, whether it was logistics, terminals. The system was set up for a large and aggressive movement that really didn't take place, but it wasn't related to risk management, which your question would imply. So I think it was an industry issue. Everybody got caught on the wrong side and didn't have time to catch up. And then I would say the role that we should play in this is to adjust when the markets demand it. So I think one thing that I alluded to, especially as it relates to crush where we have a fairly important presence globally, is that we have to be perhaps more agile and more aggressive in proactively adjusting crush rates when we see things panning out differently than anticipated. And that is something that we are working hard on and we are actually doing, but there could be perhaps more agility in that equation. That's what the role of a leader should be and we have to perhaps play that role more forcefully.

Ladies and gentlemen, this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Mark Haden for any closing remarks.

Great. Thank you, Allison, and thank you, everyone, for joining us again this morning.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.