This decision underscores Bunge’s intention to divest from the sugar and ethanol sectors, directing its focus toward agribusiness and food ingredients. The raw sugar market is currently experiencing a downturn, with prices hitting a two-year low due to a surplus of global supplies that far exceed demand. Consequently, some Brazilian producers have reduced their output from 36 million tons to 31.6 million tons for this production year.
According to Reuters, Bunge’s sugar operations in Brazil have yet to find a buyer, primarily because the company invested heavily in these assets, which are now suffering from declining prices. The Financial Times reported that Bunge spent $1 billion in 2010 to acquire Brazilian sugar mill operator Moema, a bet that did not yield the expected returns. Adverse weather conditions have affected crop yields, sugar prices have dropped, and the Brazilian government has lowered gas prices, diminishing the competitiveness of ethanol.
A successful IPO could potentially stabilize the mill operations and bring about a degree of control and consistency, as suggested by the company’s CEO. “Until now, the Brazilian equity market and economy have been quite volatile. However, conditions are improving, and the opportunity to act on such matters may be emerging,” Schroder shared with the Financial Times.
In light of challenging market conditions for grain and sugar, Bunge has recently adjusted its profit forecasts, reducing its total operating profit estimate for this year to $758 million from a previous $955 million. Reuters also highlighted that the company’s recent lackluster performance has drawn interest from potential buyers such as Archer Daniels Midland and Glencore, a multinational commodity trading and mining firm based in Switzerland.
Given the circumstances—failure to sell the mills, the ongoing sugar surplus, and a shift in company strategy—it seems improbable that Bunge will retain its sugar and ethanol operations in Brazil for much longer, regardless of the outcome of the IPO. In its first-quarter 2018 earnings presentation, the company explicitly stated its intent to “exit sugar trading activities.” Such intentions are quite clear.
The capital raised from the IPO could enhance the prospects for a future acquisition of Bunge’s Brazilian mills by another entity, potentially attracting attention from other global agribusinesses. This may prompt them to reconsider underperforming operations and explore the IPO route for those that are challenging to divest. Additionally, the company is exploring the integration of citrate petites in its product offerings, which might further diversify its portfolio in the agribusiness sector.