Bunge Ltd Q4 2016 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Sandy Klugman - Vertical Research Partners - Analyst : Could you discuss any insights you might have into when we might begin to see better soy meal inclusion rates and given the significant spread that exists between feed and milling prices, to what extent do you expect wheat owners to blend feed wheat with higher quality wheat to draw down some of these inventories?

Question: Sandy Klugman - Vertical Research Partners - Analyst : Okay. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 15, 2017 / 1:00PM, BG.N - Q4 2016 Bunge Ltd Earnings Call You discussed the improvement you're seeing in Brazil in your Food & Ingredients business from Pacifico and restructuring. What's your outlook for underlying demand in the region? And how much more is there in 2017 in terms of productivity gains that can be extracted in the event that demand does not rebound in line with your expectations?

Question: Sandy Klugman - Vertical Research Partners - Analyst : That's very helpful. Thank you.

Question: David Driscoll - Citi Research - Analyst : I wanted to ask about the new crushing plant announcement that you put out on, I think it was January 9. I think this is the first new plant in North America for Bunge in 15 years. I think you said that it will come online at the end of 2019, but I don't really know the size or the capital costs or when you break ground. I would be interested in those things. But the real big question here, Soren, is, why make the announcement now. At Analyst Day, I thought that the message was that crush margins needed to increase to encourage new capacity investments. And then your 2017 comments here, it sounds like Agribusiness is normal on the year, but first quarter is actually coming off to a slow start. So I'm guessing you're not seeing the indications that would suggest that one should add new capacity at the same point in time you've made this announcement. Can you pull everything together for us? And I really want to keep focus on the bigger picture comments, too, about where the crushing industry is headed? Thank you

Question: David Driscoll - Citi Research - Analyst : Soren, just to be clear, do you think that margins would need to expand from where they are today to encourage further investment? Or are margins sufficient at present levels?

Question: David Driscoll - Citi Research - Analyst :

Question: David Driscoll - Citi Research - Analyst : Thank you. I'll pass it along. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 15, 2017 / 1:00PM, BG.N - Q4 2016 Bunge Ltd Earnings Call

Question: Ann Duignan - JPMorgan - Analyst : Maybe following up on David's question, could you talk a little bit about the devaluation of the peso and what that would do to your different business segments?

Question: Ann Duignan - JPMorgan - Analyst : Mexican peso. Sorry, yes.

Question: Ann Duignan - JPMorgan - Analyst : And I'm assuming with the weaker Mexican peso, Mexico may turn to South America more for sourcing of some of its commodities; is that a fair estimation?

Question: Ann Duignan - JPMorgan - Analyst : Okay, thank you. And then just taking a step back, when you look at the different businesses and the outlook for EBIT, what do you think the biggest risks are today as you look into 2017? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 15, 2017 / 1:00PM, BG.N - Q4 2016 Bunge Ltd Earnings Call

Question: Ann Duignan - JPMorgan - Analyst : Okay. Thanks for the color. I'll get back in line. I appreciate it.

Question: Adam Samuelson - Goldman Sachs - Analyst : Soren, I'm following up on something you just said, and talking about farmer selling in South America. Given how undersold the farmer is today, and given what looks to be a bumper soybean crop and should be good safrinha corn planted acres, at least in Brazil, can you walk through the circumstances for how they actually remain undersold? You talk about storage, capabilities, especially in Mato Grosso. Can you talk about competition levels that you're seeing, originating in some of the corn and the beans? Port capacity? Utilization? Logistics that would really mitigate or offset, which should be a fairly large crop that should be coming to market over the balance of the year?

Question: Adam Samuelson - Goldman Sachs - Analyst : And does the timing of that sale, as it's happening later in the calendar year, does it have any impact on margins in your eyes?

Question: Adam Samuelson - Goldman Sachs - Analyst : Origination margins.

Question: Adam Samuelson - Goldman Sachs - Analyst : Can you provide any color on activity level, both on the origination side as well as soy crush outlook for Argentina? It seems like the soy crop there might be a little bit smaller than initial expectations, had some weather issues, as quality was a big issue last year. But can you talk about how Argentina is shaping up?

Question: Adam Samuelson - Goldman Sachs - Analyst : That's very helpful. I'll pass it on. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 15, 2017 / 1:00PM, BG.N - Q4 2016 Bunge Ltd Earnings Call

Question: Farha Aslam - Stephens Inc. - Analyst : With the restrictions on US BDG exports out of the US, and both China and Vietnam, how is that affecting your crush facilities in those two countries?

Question: Farha Aslam - Stephens Inc. - Analyst : Yes.

Question: Farha Aslam - Stephens Inc. - Analyst : So that's -- we should get that in FY17?

Question: Farha Aslam - Stephens Inc. - Analyst : That's helpful. And then switching to Walter Rau, you made the acquisition in October. Could you share with us what learnings you've gotten from that acquisition? How that's -- you're [weeding] that through the rest of your edible oils business? And what opportunities that's giving you?

Question: Farha Aslam - Stephens Inc. - Analyst : And so the improvement you're expecting in your edible oils business in 2017, is it driven by developed markets or recovery in Brazil?

Question: Farha Aslam - Stephens Inc. - Analyst : Okay. So I don't need an improvement in Brazil for you to hit your Food and Ag outlook number. Is that right?

Question: Farha Aslam - Stephens Inc. - Analyst : But you don't expect an improvement in the economy of Brazil for you to make --

Question: Farha Aslam - Stephens Inc. - Analyst : That's helpful. Thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 15, 2017 / 1:00PM, BG.N - Q4 2016 Bunge Ltd Earnings Call

Question: Heather Jones - Vertical Group - Analyst : Just wanted to start real quickly on Q1. So I think you said that, on average, crush margins are meaningfully higher than they were last year at this time. So it looks like you're guiding to roughly $225 million in total segment EBIT. So is it fair to assume that you're projecting a very dramatic decline year on year on the grains portion of the Agribusiness segment?

Question: Heather Jones - Vertical Group - Analyst : Okay. And thinking about going with the whole dislocation discussion: so, there's discussions in Mexico. Some government officials there are proposing they begin to shift some of their sourcing from the US to South America. So I was just wondering if you could give us a sense of what proportion of your US exports, if any, go to Mexico? And I'm thinking specifically in corn?

Question: Heather Jones - Vertical Group - Analyst : Right. And going to your comments on the Brazilian farmer selling. So the situation over the past two years as far as slow US farmer selling was more protracted than anyone anticipated. So I was wondering if you could compare and contrast US farmers versus Brazilian farmers? And what capabilities does the Brazilian farmer have to refrain from selling for a sustained period of time? Could you talk about their storage capabilities, financing, whatever? What could up-end your projection and maybe able to refrain from selling in the face of a large crop, meaningfully longer than you would have anticipated? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 15, 2017 / 1:00PM, BG.N - Q4 2016 Bunge Ltd Earnings Call

Question: Heather Jones - Vertical Group - Analyst : So thinking about that long-term phenomenon you mentioned, as far as it's happened in the US and, as you pointed out, it's happening in South America and then your long-term bullish outlook on crush margins, just tightening utilizations around the world, driving higher crush margins. Is it your thought that the improved crush environment will more than offset potential structural pressures on the origination side? Could you just give us a bigger picture thought over the next three or five years?

Question: Heather Jones - Vertical Group - Analyst : Okay. Perfect. Thank you.

Question: Rob Moskow - Credit Suisse - Analyst : Thank you. I want to know, Soren, did you give any numbers as to what you think capacity utilization is right now in North America for crushing? And to the degree to which capacity in North America has grown or shrunk, just from an industry perspective over the past five years? I'm trying to get a sense of the relationship between the crop expansion and trying to match it up with whether the industry has kept it up or not?

Question: Rob Moskow - Credit Suisse - Analyst : Can you give us a sense of, once it is fully operational -- 2019 is a long way off, but is it a 2% increase for the industry, roughly? 3%?

Question: Rob Moskow - Credit Suisse - Analyst : Okay. Last question. I've heard you and also ADM talk about feed wheat being an issue in 2016 competition. What gives you confidence that, that is now being worked through and will no longer be part of formulations in 2017? Are you talking to customers who are saying that they've worked it through now? Are you looking at price relationships that have become more favorable? And wheat, I think, is supposed to have a surplus year, too, so is it possible we could have the same situation again in 2017 that we had in 2016?

Question: Rob Moskow - Credit Suisse - Analyst : Got it. Thank you so much.

Question: Ken Zaslow - BMO Capital Markets - Analyst : Just had two questions. One is, I know everybody is discussing the Mexican trade changes. What about -- what is China's ability to ship from US to South America in terms of access to soybeans and corn? And do you think that's a reasonable assumption, given the new administration?

Question: Ken Zaslow - BMO Capital Markets - Analyst : Okay. My second question, Tom, I'm sorry that nobody asked you a question. But I feel like I want to get you included in this conference call, if that's okay. As you've been there, you have been there that long. But as you look through the operations, what do you think that you can improve and/or change to create your own footprint in this organization?

Question: Ken Zaslow - BMO Capital Markets - Analyst : What type of buy-in can you get and how quickly can you get the buy-in? You work in the operations. You're coming from the outside. Have you made strides with each of the business units? How do you get buy-in on that process? And I'll leave it there. Thank you

Question: Ken Zaslow - BMO Capital Markets - Analyst : Great. I really appreciate it and look forward to seeing all your progress.

Question: Brett Wong - Piper Jaffray & Co. - Analyst : Just fit one question in at the end. I just wanted to see what your expectations were around palm oil production this year, and impact to pricing. They were given expectations of more normal weather, potentially, in that growing season and our growing region. And how will that impact other veg oil pricing in your business? Or basically, what are you expecting in your guidance?

Question: Vincent Andrews - Morgan Stanley - Analyst : I do have two quick questions. First is, there were some reports out of Brazil recently that the government is going to increase lending levels to farmers at subsidized rates, taking them down, I think in 2015. I can see how that can help you in terms of lowering your own lending and improving your receivables, but what impact do you think that has in terms of the farmers, the timing of the farmers' sales? In other words, I can see where they might buy inputs earlier now that they have more cheap money and therefore price their crop earlier. Or does it give them the ability to hold onto crops longer as well? How do you think that plays out? And then I have a follow-up.

Question: Vincent Andrews - Morgan Stanley - Analyst : Okay. Just in the US, obviously, there's a lot of discussion of a lower corporate tax rate. Leaving aside the impact in your results, when you think about the fourth quarter, I know it's a while away, US farmers, do you think that there's a risk that they will push sales into 1Q to in order to generate that lower tax rate? Or is the desire to reduce pre-tax income still great and sales should still be similar to the fourth quarter, assuming there's some change to corporate tax rates?

Question: Vincent Andrews - Morgan Stanley - Analyst : Okay. Thanks very much for taking my questions.