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23/10/2013 - REUTERS
Bunge may sell money-losing Brazil sugar unit

CHICAGO, - Bunge Ltd´s BG.N new chief executive signaled plans to shed its loss-making Brazilian sugar milling business, making Bunge the first major merchant to consider exiting the one-hot sector that has swallowed billions of dollars of investment.

Bunge reported a quarterly net loss of $137 million as the sugar unit dragged on earnings. Shares fell 1.4 percent after the loss, and a sharp revenue drop that surprised analysts.

Chief Executive Soren Schroder said the company was launching "a thoughtful comprehensive review" of its Brazilian milling operations, which have suffered from poor crop weather and low global sugar prices.

The company has not yet discussed a potential sale of the milling unit with any suitors, Schroder later told Reuters in an interview. The replacement value of its milling assets is more than $3 billion, he said. Schroder, who took over as CEO in June, gave no time frame for the review.

It has been about six years since Bunge and other global firms including oil major BP PLC BP.L and Singapore-listed Olam OLAM.SI raced to grab a share of the sweetener business in Brazil. The companies bought up mills and farms in a bid to vertically integrate their businesses and in a bet that tight sugar supplies and a growing ethanol market would boost earnings.

Analysts have estimated that Bunge spent more than $2 billion buying up assets in Brazil, and now operates eight sugarcane mills with a combined crushing capacity of 20 million tonnes of cane a year, which it processes into sugar and ethanol.

But those Brazil bets have soured in recent years with local cane mills, which produce both sugar and ethanol, hit hard by rising costs of doing business and Brazilian government caps on domestic fuel prices, which hurts returns on ethanol.

So far, most other companies have hung on. In December, Louis Dreyfus´ local sugar and ethanol milling spinoff BioSev sold its Usina Sao Carlos in Sao Paulo state for 200 million reais ($90 million) to rival milling group Sao Martinho.

JPMorgan analyst Ann Duignan said she was "encouraged" by Bunge´s exploration of options for its sugar business.

Some analysts saw it as a dark omen for Brazil´s ethanol sector. They wondered how Bunge would find a buyer amid such uncertainty.

“This is a bad signal for the sector," said Julio Maria Borges, director of sugar and ethanol analyst JOB Economia.

“The expectation of Bunge when it entered the productive side was that there was money to be made. The problem, even though sugar prices are low, is on the ethanol side, which is 50 percent of the cane business."

Schroder said it has been challenging for Bunge to transfer its strengths in other agribusiness areas such as grains and soybeans to sugar. He noted that the company is growing sugar instead of just trading it, and also dealing with complications because of government fuel price controls in Brazil.

Sugar and biofuels are a small part of Bunge´s overall agriculture business, accounting for only 7 percent of net sales in the nine months to Sept 30.

By Tom Polansek - Eugenio

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