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| As Russia banned wheat exports amid a drought in the Black Sea region, Bunge sought supplies from the Americas |
Alberto Weisser does not want people thinking his company profits from misfortune.
When the worst drought in a century struck the Black Sea region last summer, destroying much of the wheat crop, Russia declared an export ban that sent importers searching for supplies.
Bunge, the global agribusiness Mr Weisser heads, met supply needs with grain from the Americas. The company’s profit margins also widened, and its quarterly report says a Bunge unit “benefited from the crop shortages related to the drought in eastern Europe”. Since August, the New York-listed company’s shares have gained almost 30 per cent – more than twice the pace of the S&P 500.
But Mr Weisser is clearly not at ease with the idea.
“I hate to say that we benefit,” he says in an interview at the company’s White Plains, New York, headquarters.
“What we have done is a very deliberate strategy to build a global network of systems to be one of the companies who can provide food when it’s necessary.”
The importance of companies like Bunge to global food security is set to increase. The company, founded in Amsterdam in 1818, is one of the world’s leading international suppliers of basic foodstuffs.
As incomes of emerging-market households grow, so grows their appetite for proteins, such as meat and milk. This means greater demand for foreign sources of animal feeds – corn, soya beans and wheat.
China now relies on imports to meet 80 per cent of its soya bean demand, and this year became a significant importer of corn for the first time in 15 years. India is set to become a net importer of soya bean meal to satisfy a booming poultry industry, according to Rabobank.
Bunge, which last year moved 140m tonnes of commodities, ranks with Archer Daniels Midland, Cargill and Louis Dreyfus as one of the companies able to connect areas of food surplus and deficit.
Crises put these companies to the test. After Russia banned exports, Bunge lost money in the Black Sea, but speedily bought corn in Brazil and the US. “These are moments where you have to move very, very fast,” Mr Weisser says.
Profits grew in what is historically a high-volume, low-margin business. Grain prices shot up, making reluctant farmers more relaxed in negotiations with Bunge’s buyers.
Meanwhile, major importers, such as those in North Africa, needed the grain. In the quarter ending September 30, Bunge’s operating profit margin widened to 2.9 per cent from 1.8 per cent in the same quarter of 2009.
“Margins expand at these moments because markets get nervous,” Mr Weisser says. “It plays to our strength. Because of our global network these dislocations give us opportunities.”
Predictions of dwindling corn stocks in the US, the largest exporter, mean jittery markets could continue for some time. Other crops, including grain, oilseed and cotton, will be affected as farmers allocate land based on financial returns. Bad weather, such as a recent dry spell in Argentina, the second-largest corn exporter, could again set off a scramble for supplies.
Volatility is a double-edged sword for agribusinesses. The Russian export ban wrong-footed ADM in the latest quarter. Bunge was stung after the fertiliser market collapsed in 2008. It has since sold its Brazilian fertiliser business to Vale, the miner, for net proceeds of $3.5bn.
“More dynamic markets make good positioning more profitable and poor positioning for large agribusiness companies more painful,” says David Nelson, strategist at Rabobank.
Bunge used some cash from the Vale sale to buy back debt, buttressing its balance sheet. But rampaging grain markets temporarily swallowed up more as the group needed an extra $1.6bn in working capital in the third quarter to buy inventory and maintain price hedges on futures markets.
Bunge and other legacy traders also face competition in Asia, where rivals, such as Noble, Olam and Wilmar, are expanding rapidly.
The US group has, however, been extending its own global footprint, purchasing Brazilian sugarcane mills and agreeing to buy a sugar mill operator in Australia this year.
In the US, a Bunge joint venture is building a grain export terminal on the Pacific coast, far from the nation’s breadbasket, to better connect with Asian markets.