CHICAGO, Aug 3 (Reuters) - With Brazilian farmers storing soybeans due to low prices, Bunge Ltd is aiming to change the way it buys crops in an effort to prompt more selling and rebuild profit margins.
Bunge, one of the world’s largest oilseed processors, wants to get farmers to agree to sell more of their upcoming crops to the company ahead of harvest time by offering extra help with services, such as financing and price risk management, Chief Executive Soren Schroder told analysts on Wednesday on a conference call.
“We feel that we can step it up,” he said.
“It is our objective to sort of reinvent the way that we go to market with the farmer.”
Bunge and its competitors have suffered as Brazilian farmers have put soybeans from the 2017 harvest in storage, rather than selling them when prices are low. That has reduced margins by forcing the companies to compete with each other to buy soybeans, even though inventories are ample.
In Brazil, grain handlers, such as Cargill Inc, regularly give products like chemicals and seeds to farmers in exchange for commitments that the growers will deliver portions of their harvests to the companies, said John Baize, an international agricultural trade and policy consultant. Growers make the deals so they do not need to borrow money to buy materials.
Cargill had no immediate comment on Thursday on Bunge’s plans to enhance its offerings. Archer Daniels Midland Co , another rival, said in a statement it is “always evaluating how it can bring more value to these important relationships” with Brazilian farmers.
Bunge’s moves are the latest steps by a major grain handler to cope with pressures from large global harvests that have driven down prices and subdued volatility essential to earnings. Companies have also invested in higher-margin businesses, such as food ingredients, but results of the efforts have been mixed.
On Wednesday, Bunge kept the door open to a sale of the company as it reported a 34 percent drop in quarterly earnings. The company also slashed its full-year agribusiness earnings target because of slow selling by Brazilian farmers.
Kenneth Zaslow, analyst for BMO Capital Markets, said increased soybean sales by South American farmers will be the key catalyst for Bunge to “reaccelerate its earnings to more normalized levels.”
On Tuesday, ADM said slow farmer sales in South America had dragged down quarterly profits for its soybean processing business. (Reporting by Tom Polansek; editing by Diane Craft)