May 16, 2018 / 3:30 PM / 4 days ago

UPDATE 2-ADM, Bunge say they can navigate U.S.-China trade tensions

(Recasts to include ADM, adds company and industry details, comments by ADM’s CFO)

By P.J. Huffstutter, Tom Polansek and Chris Prentice

CHICAGO/NEW YORK, May 16 (Reuters) - Global grain merchants Archer Daniels Midland Co and Bunge Ltd can withstand agricultural trade disruptions arising from U.S.-China tensions and potentially profit from them, company executives said on Wednesday.

Soren Schroder, chief executive of Bunge, and Ray Young, ADM’s chief financial officer, also said at an investor conference in New York that their companies were benefiting from a savage drought in Argentina that has increased soy processing margins and trading prospects.

The companies are projecting improved profits in 2018, after massive global harvests increased grain stockpiles and reduced trading opportunities in recent years.

The U.S. trade dispute with China may create additional opportunities for ADM, Young said, two weeks after the company warned the conflict could pinch revenue.

“When we take a look at the short term, the medium term, as well as some of the trade frictions that are out there, we actually feel very, very confident about our prospects,” Young said.

Grain traders such as ADM and Bunge have seized upon the tensions between the world’s two biggest economies to turn around struggling trading units.

However, the dispute is also disrupting supply chains worldwide, with ships carrying U.S. sorghum turning around after Beijing raised prices for buyers.

Soybean buyers in China have separately shifted purchases to Brazil from the United States, after Beijing threatened tariffs on imports of U.S. products including soybeans. The crop is America’s top agricultural export to China, worth more than $12 billion last year.

ADM is confident the countries will “get through” the dispute, and sees an opportunity for China to import additional ethanol, Young said.

For Bunge, the dispute provides a chance for the company to make use of its global footprint, which includes oilseed processing facilities in the United States, Europe and South America, Schroder said. Last year it acquired two oilseed crushing plants from rival Cargill Inc in the Netherlands and France.

“You can arbitrage the soybean sourcing from any origin,” Schroder said.

ARGENTINA DROUGHT CHANGES BUYING

Argentina’s drought has improved global oilseed crushing margins for the merchants, according to the companies. Losses linked to the dryness also have spurred global buyers of soybean meal, used to feed livestock, to make purchases in advance, instead of only when they need it, Young said.

“We’re creating a fairly sizable forward meal book, which allows us to trade around the book as well and create additional margin opportunities,” he said.

Argentina, the world’s third-biggest soy producer, booked its largest purchase of U.S. soybeans in 20 years last month after the drought cut its harvest, forcing crushers there to turn to imports.

ADM may look at expanding corn processing in South America as part of its growth strategy, Young said.

SUGAR SPIN-OFF

Also in South America, Bunge plans to sell part of its stake in its Brazilian sugar and ethanol subsidiary, according to documents filed with Brazil’s securities industry regulator CVM on Tuesday.

The company has been looking to sell the sugar assets since 2013. However, no deal has emerged due to a downturn in the sector and the high price at which Bunge scooped up the mills.

Raw sugar prices are languishing at multi-year lows as huge global supplies of the sweetener outpace demand.

A string of weak results over the past year left Bunge’s management fending off takeover approaches from traders Glencore Plc and ADM.

Media reports say the talks with ADM have ended, and neither company has commented on them. (Reporting by P.J. Huffstutter and Tom Polansek in Chicago and Chris Prentice in New York Editing by Steve Orlofsky and Matthew Lewis)

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