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How Improved Farm Economics Could Help Bunge’s Fertilizer Segment

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Fertilizer segment

Bunge’s (BG) smallest operating segment is its Fertilizer segment, which has operations in Argentina. The segment produces, blends, and distributes a range of NPK fertilizers. Competitors in this business in Argentina include YPF (YPFD), Profertil, and Nidera. Other global competitors include:

  • Yara International (YARIY), a Norwegian chemical company
  • Louis Dreyfus Commodities, a French global conglomerate company
  • Syngenta (SYT)
  • Agrium (AGU)

Agrium, Yara International, and Syngenta earned net revenues of $14.8 million, $108 million, and $13.4 million, respectively, in fiscal 2015.

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Improved farm economics

Bunge has an optimistic outlook for the fertilizer business in 2016 mainly due to its improved farm economics in Argentina. A weaker peso and the removal of export taxes on grains contributed to improved farmer economics. The company expects $30 million to $40 million worth of income from this segment in 2016.

Higher volumes and margins in the Argentinian fertilizer operations and increased volumes at the Brazilian port facility contributed to the improved results for the Fertilizer segment in the first quarter of 2016. The Fertilizer segment earned an operating profit of $2 million compared to a loss of $6 million in the corresponding quarter a year ago.

Bunge is about 3.0% of the VanEck Vectors Agribusiness ETF (MOO). This ETF has returned 8% in the last three months. Other ETFs that invest in Bunge are the PowerShares Global Agriculture Portfolio (PAGG) and the iShares MSCI Global Agriculture Producers ETF (VEGI), which invests ~7% of its holdings in Bunge.

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