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Morningstar | Bunge's Agribusiness Is Well-Positioned to Benefit From Increasing Global Soy Demand

Bunge buys, processes, and sells agricultural commodities. The commodity products that Bunge moves around the world are readily available from competitors, and the company has little pricing power over the products it buys and sells, making for razor-thin margins. Additionally, the capital intensity of its operations makes it difficult for Bunge to generate economic profits.Bunge generates nearly two thirds of its profits from the agribusiness segment. The company buys crops from farmers and then transports, stores, and processes the crops before selling them to food and feed companies. Based on capacity, Bunge is the leading oilseed processor in the world. The company has a large footprint in Brazil, the second-largest producer of soybeans behind the United States. We think the firm will benefit in the coming years as global agriculture trade increases. That said, we think Bunge operates in a very tough and volatile environment. As a middleman in a commodity industry, Bunge is subject to price and foreign exchange fluctuations outside of its control. Crop yields, and thus weather, also affect Bunge's results year to year. Further, the company's expansive distribution and processing network requires constant capital expenditures, and high fixed costs require high-capacity utilization to produce solid profits.In addition to agribusiness, Bunge has notable operations in food and ingredients, where the company processes and sells edible oils and corn-based products. Through acquisition, the company is focusing on expanding its premium oils products. In September 2017, Bunge announced the acquisition of a 70% ownership stake in Loders Croklaan, a producer of palm and tropical oil ingredients used in food and consumer products.Bunge also has notable operations in sugar and fertilizer operations. In 2010, the company purchased five Brazilian sugar mills, increasing its sugar cane milling capacity to about 20 million metric tons. Government-mandated gasoline price ceilings have had a significant negative impact on ethanol demand in Brazil.