UPDATE 4-Bunge hit by volatile markets, but outlook cheers

Thu Oct 27, 2011 4:25pm EDT

* Adjusted Q3 EPS 86 cents vs $2.26 year ago

* Poor margins, forex loss from tumbling Brazil currency

* Volatile commodities markets impacted risk management

* Shares rise 5.6 pct on positive outlook

By Karl Plume

Oct 27 (Reuters) - Agricultural processor Bunge Ltd put a brave outlook on a profit slump on Thursday, cheering investors after a quarter in which whipsaw markets and Brazil-related sugar losses cut earnings by a third.

Following the most volatile quarter since the financial crisis for many commodities, Chief Executive Alberto Weisser said the trading giant had been forced to pass up some opportunities in markets that had become divorced from supply and demand.

He joined Cargill Inc'sGreg Page in bemoaning the whipsaw trading and global economic uncertainty that has sapped revenues, an abrupt change for two top agricultural traders who would normally prosper during volatile times by using their vast global networks to exploit opportunities.

"Prices were not reflecting underlying fundamentals. It makes positioning much more challenging so we all operated much more cautiously," Weisser said as the White Plains-based firm posted a 34 percent decline in earnings.

"We walked away from some business that in a different environment we might have executed. We conducted much more back-to-back transactions. Counterparty exposure became a concern. So as a result, margins and merchandising were lower," Weisser said.

Bunge's shares, which have lagged behind its peers over the past month, rose 5.6 percent, outpacing the broader market as investors took heart in signs that demand for its products was growing and crop supplies were rising with the Northern Hemisphere's harvest, which should bolster margins.

But rivals also rallied, with Archer Daniels Midland Co up 4.5 percent and Corn Products International climbing 8 percent on buoyant commodity prices.

Bunge, the world's largest oilseed processor and among the top sugar and ethanol producers, pinned its profit short-fall on drought-reduced sugar milling volumes and a $29 million foreign exchange loss due to the Brazilian real's 16 percent plunge last quarter.

Bunge's sugar and bioenergy segment, centered in top sugar exporter Brazil, posted a $43 million loss in the third quarter, compared with a profit of $34 million a year earlier.

VOLATILE MARKETS WEIGH

Unusually volatile markets and broader economic uncertainty complicated Bunge's risk management strategies and strained margins in its agribusiness and sugar and bioenergy segments.

Weisser also heaped some blame on increasingly unpredictable U.S. Agriculture Department crop reports, closely followed by markets around the world, which at times left grain traders with more questions than answers.

"There were a lot of complex uncertain external factors -- weather, macro uncertainties, crop reports to name a few -- which influenced the commodity markets during the quarter, which made it much more challenging to navigate," he said.

Bunge's woes followed an even deeper 66 percent decline in profits at leading private trading firm Cargill, which cited "the persistently high degree of uncertainty in the global economic environment, which injected turbulence into commodity markets and limited prudent trading opportunities."

Benchmark U.S. corn prices on the Chicago Board of Trade struck an all-time record near $8 a bushel in June, only to tumble 23 percent by the end of the month. Two months later, prices came within 40 cents of the record high but plunged another 22 percent over the next five weeks.

Soybeans were on a similar rollercoaster ride, notching a two-year high of more than $14.50 a bushel in late August then diving 21 percent to a one-year low a month later.

AGRIBUSINESS HALVES

Agribusiness, Bunge's largest segment, posted a net profit of $159 million, down 49 percent from an uncommonly strong third quarter a year ago. Edible oils profit slipped 3 percent, while milling products profit fell 38 percent.

Bunge's revenue increased, but margins narrowed as costs for many of the raw farm products the company buys, sells and processes into food, animal feed and fuel soared to multi-month peaks during the quarter, then later plunged.

Bunge, reported a net profit of $140 million, or 89 cents per share, compared with $212 million or $1.36 per share a year earlier.

Excluding one-time items, earnings fell year-on-year to 86 cents per share from $2.26, while revenue rose to $15.62 billion from $11.66 billion a year ago.

Analysts, on average, had expected earnings of $1.58 per share, according to Thomson Reuters I/B/E/S.

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