Milling & Baking News - April 25, 2017 - 12

Business X

Large Brazilian soybean crop
impacting agribusinesses
NEW YORK - An ever-growing
Brazilian soybean crop is depressing
prices in the nation, resulting in low
farmer selling and leading to a weak
start to the year for grain processors
such as Archer Daniels Midland Co.
and Bunge, said analysts with Credit
Suisse during a conference call on
April 7.
But it's not significant enough for
analysts to lower their expectations
for the two companies that are major players in agriculture. While the
analysts lowered Bunge's first-quarter results below consensus to 78c

per share, they maintained the company's fiscal year 2017 earnings per
share at $6. ADM's first-quarter estimate was maintained at 64c, but the
2017 estimate was lowered to $2.95.
"That includes a big outsized benefit in Wilmar, but weaker results in
the rest of the business," said Robert
Moskow, who covers food and agribusiness processors for Credit Suisse, during the conference call.
Ahead of the earnings announcements, ADM and Bunge shares rallied April 18, suggesting a hopeful
turn in investor sentiment.
Brazilian equivalent soybean prices are down 21% off summer highs,
so farmers aren't selling, he said.
Prices are down because the Brazilian crop keeps getting revised higher
and is now estimated at 108 million
tonnes, an increase of 11.5 million
tonnes from last year, according to
the U.S. Department of Agriculture.
North America's impact
What's happening in North America also impacts South America,
12 / April 25, 2017 XMilling & Baking News

Mr. Moskow said. The U.S.D.A.'s
March 31 planting intentions for
corn and soy were higher than expected, as was inventory. Soybean
planting intentions of 89.5 million
acres are up 7% year-over-year.
That combination is pressuring
soy prices, he said, and that has
led to an increase in the volume of
North American soybean exports.
The U.S.D.A. estimates that number
at 2.025 billion bus.
"There's a 5% increase this year,
and we're extending the time period
of exports," Mr. Moskow said. "That's

supposed to be a good thing for North
American-focused exporters like
ADM. But margins for exporters have
contracted."
Soybean crush margins are ticking
up a little bit vs. fourth quarter and
a year ago, but are still down from
the five-year average. Processors are
holding back on production hoping
to get the margins higher, he said.
Pressure from Argentina
Crush margins mainly are being pressured by Argentina, which
dumped a large amount of soybean
meal on the market, he said.
"Despite global protein expansion,
that has not translated into attractive
soybean meal prices yet," Mr. Moskow said.
There were several factors that
stopped analysts from lowering estimates further for ADM and Bunge.
For one, Brazilian farmers will have
to sell eventually, Mr. Moskow said.
This may happen by the end of the
second quarter, but it may need
some decline in the Brazilian real or

a jump in prices to motivate farmers.
Victor Saragiotto, a Credit Suisse
analyst based in Brazil, said Brazilian farmers do not have enough storage to hold onto a significant portion
of their crops. But farmers are reluctant to sell at current prices, and only
62% of soybean production has been
sold, he said.
Boost from Wilmar
In addition, ADM will see a big
boost in the quarter from its investment in Wilmar. Mr. Moskow estimated that impact will be $60 million higher than expected. In 2016,
ADM increased its strategic ownership stake in Wilmar to 23%. Based
in Singapore, Wilmar has assets in
soy crushing, edible oil refining and
packaging, palm plantations, palm
refineries, biodiesel production, specialty fats and oleochemical fatty acids throughout Asia.
Crush margins should get better eventually, too, Mr. Moskow
said. Feed wheat formulations have
worked their way through and are
no longer viewed as a factor.
Corn processing is still strong, and
analysts are not concerned about
2018 high-fructose corn syrup (HFCS)
pricing. Analysts did not change their
forecast for strong margins in corn
processing for ADM or Ingredion.
Keeping an eye on ethanol
Ethanol margins are better than
last year, but are still down from the
long-term averages, Mr. Moskow
said. U.S. exports, which are tracking at almost 1.5 billion gallons, are
driving the strong margins by tightening domestic supply and improving pricing, he said.
Higher ethanol exports could have
a negative impact for Bunge, he said.
Ethanol prices in Brazil have come
down due to the large volume of U.S.
imports.
"We've reduced our estimate on
Bunge's Brazil sugar and bioenergy,"
he said.
The next 30 days will be crucial for
corn production in Brazil, Mr. Saragiotto said. If it rains, corn production could be even higher than the
estimated 89 million tonnes. That
compares to a challenging 2016 and
a yield reduction of 25%.
"The corn market remains very
liquid." Mr. Saragiotto said. "Prices
are starting to cause concern among
producers and the government."
The government has said it will act
to sustain prices, if necessary. MBN
bakingbusiness.com / world-grain.com

http://www.bakingbusiness.com http://www.world-grain.com

Milling & Baking News - April 25, 2017

Table of Contents for the Digital Edition of Milling & Baking News - April 25, 2017