Congestion at Brazilian ports and limited selling of crops by U.S. farmers are keeping global grain supplies tight despite expectations for massive harvests later this year, agribusiness company Bunge Ltd said on Thursday.
Inventories of crops like corn and soybeans dwindled following a historic drought in the United States last year and because of strong demand from buyers like China.
Food makers hope large harvests in the United States this autumn will replenish inventories and put further pressure on prices, which have pulled back from all-time highs reached last year because of the drought.
However, the flow of crops to the world from growers in North and South America remains constrained, according to Bunge, one of the world's top agricultural trading houses.
"Agribusiness markets are transitioning from ones of tightness to more comfortable supplies," Chief Executive Alberto Weisser said in a statement. "Customer inventory pipelines are lean and in need of restocking, so demand should remain strong."
Bunge is among the four large players known as the "ABCD" companies that dominate the flow of agricultural goods around the world. The others are Archer Daniels Midland Co, Cargill Inc and Louis Dreyfus Corp.
Bunge profits by buying, transporting and processing crops but is facing logistical challenges in Brazil, where farmers are expected to harvest record corn and soybean crops.
A Brazilian soy crop that's almost one-quarter larger than last year's has strained infrastructure at ports to the breaking point, with long queues of ships waiting to berth and hundreds of trucks sitting idle for days waiting to offload.
The delays have cost Brazil, with top soy importer China reported to have lost patience and cancelled some loads to buy from the United States instead.
Weisser, in reporting Bunge's quarterly earnings, said the company's agribusiness team "performed well, managing risk in a volatile market environment characterized by tight global supplies and challenging Brazilian logistics."
"The logistics congestion in Brazil is improving, but delays will persist until the U.S. harvest later this year," he said.
Earnings Beat Street
Bunge's quarterly results beat expectations, helped by a jump in sales of sugar and bioenergy products. The company earned $170 million in the first quarter ended March 31, up from $84 million a year earlier.
Excluding items, the company earned $1.15 per share, topping the average analyst estimate of 92 cents per share, according to Thomson Reuters I/B/E/S. A year ago, it earned 57 cents per share.
Revenue totaled $14.79 billion, above Wall Street's expectations of $13.99 billion and $12.91 billion a year earlier.
Bunge shares closed at $68.30 on the New York Stock Exchange on Wednesday and are down 6 percent since the beginning of the year. Shares of rival ADM, which is due to report quarterly earnings on Tuesday, are up 18 percent so far this year.
In the United States, farmers, who are preparing to plant the corn and soybeans they will harvest in the fall, are hesitant to sell any crops they have in storage after the drought caught them by surprise last summer.
Cold, wet weather has slowed spring planting in the Midwest, raising uncertainty about prospects for the harvest this year.
"Our oilseed processing and merchandising operations in North America and Europe are being impacted by the combination of tight supplies and farmers holding on to their crops until they have more visibility into the progress of their new crops," said Drew Burke, Bunge's chief financial officer.
Bunge said earlier this month that it planned to idle a processing plant in Kansas from May 1 until the autumn harvest due to low supplies of the oilseed.
Many U.S. soy processors shut down for a week or two beginning in April to prepare machinery ahead of the fall harvest. However, seasonal downtimes could run longer this year as the worst U.S. drought since 1934 cut output last year, leaving supplies tight.
Bunge said earlier this month that it did not expect to shut down any other processing plants for an extended period of time but may have "interruptions" at other facilities.