A combination of a U.S. supply glut and recently imposed Chinese tariffs on imports of American agricultural products has soybeans trading at their lowest level in 9 years. Prices for corn and wheat are also trading near multi-year lows, buy soybeans have been especially hard-hit because the biggest importer of American soybeans is China.
The U.S. is the world’s largest producer of soybeans and threatened tariffs of up to 30% by China could impact U.S. exports by as much as 40%. Anecdotal data from grain merchants is that Chinese customers have already drastically reduced their purchases of American soybeans for delivery later in 2018 in anticipation of having to pay steep tariffs. Those purchases are largely shifting to Brazil and Argentina, the world’s second and third biggest soybean producers, respectively.
A rising dollar also hurts U.S. soybean exports as it makes domestic products relatively more expensive on the world markets.
Global grain merchant Bunge LTD (BG - Free Report) operates a global network of facilities, including grain elevators and port terminals, covering the world’s largest agricultural regions and areas of fastest-growing food consumption.
Bunge is in a unique position to not only withstand the storm in commodity prices but to actually benefit. Operating on five continents, including substantial operations in South America, Bunge is able to satisfy Chinese demand for soybeans and other grain products while avoiding tariffs on U.S. agriculture exports.
After a disappointing last few years due to a supply-glut that significantly reduced profitable trading opportunities, Bunge is now well positioned to capitalize on recent price volatility. While delivering a Q1 earnings beat, the company highlighted improved results across all divisions, including Argibusiness, Edible Oils, Milling Products, Sugar and Bioenergy and Fertilizer.
Bunge significantly raised revenue guidance for full year 2018 and announced that a “Global Competitiveness Program” is expected to reduced expenses by nearly $100M per year.
Rising forecasts have the Zacks Consensus Earnings Estimate at $5.30 for 2018, 175% higher than 2017 and up from $3.87 just 90 days ago. Bunge Ltd is a Zacks Rank #1 (Strong Buy).
Finally, Bunge has been the subject of takeover rumors with English commodity and mining giant Glencore reportedly considering a bid. Bunge has had informal merger discussions with both Glencore and Archer Daniels Midland (ADM - Free Report) over the past year but nothing has come of them so far. In general, counting on a merger or buyout to drive stock price is a shaky investment strategy at best, but with Bunge trading at a forward P/E ratio of 13.3X – below the industry average of 14.3X – having suitors contemplating a deal is bullish, whether or not the acquisition happens.
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