US-China trade war hits Bunge spending plans

US-China trade war hits Bunge spending plans

The US-China trade war has contributed to a slowdown in capital spending at Bunge, the global agricultural trader with a large presence in the American farm belt.

Escalating tariffs have redirected world flows of soyabeans. China now favours Brazil over the US as it meets its 100m tonnes of demand.

Bunge, the world’s largest oilseed processor, has crop export assets in both North and South America. But the trade dispute has complicated the company’s decision-making on where to invest further, Greg Heckman, chief executive, said in an interview at the company’s headquarters on Tuesday.

When Bunge considers spending money on long-lived assets, it examines “all of the possible things that could happen and ensuring that you’re comfortable with the outcome under all those scenarios”, Mr Heckman said. “We’ve got some new data points to put in that stress test with the current US-China trade tension.”

Mr Heckman was hired as chief executive this year as the company embarked on a strategic review of business units under pressure from two activist investors. Bunge’s shares have risen since his arrival but remain less than half of their peak of a decade ago.

Bunge has outlined plans for $550m in capital spending this year, a slight increase from 2018 but well below the $1bn spent annually early this decade. The company has an asset-heavy footprint of grain silo complexes, ports and processing plants necessary to handle more than 150m tonnes of agricultural products per year.

The company’s second-quarter results were hit by low exports from North America as a result of the US-China trade conflict that began in 2018.

Mr Heckman has previously said the company would be reluctant to spend capital on projects that do not pay off. Last week Bunge announced it was moving its global headquarters from White Plains, New York, to St Louis, Missouri.

“We’ve pulled back our capital spend anyway, as we run our business better,” Mr Heckman said. Referring to the US-China trade dispute, he added: “But in this environment, it’s even more reason with all the uncertainty, to slow down the investment until some of the smoke clears.”

The company has embarked on a wholesale review of its portfolio, a process Mr Heckman said he expects will conclude by the second quarter of 2020. In the first concrete outcome of that process, the company has announced it would put its Brazilian sugar business in a joint venture with BP, removing a lossmaking unit that was the result of a poorly timed acquisition in 2010.

Profit margins from trading processing grain have come under increasing pressure as technology makes prices more transparent and big farmers use storage bins to hoard crops rather than sell cheaply to traders such as Bunge. A succession of large harvests has also damped volatility, historically an advantage for agricultural merchants.

“I think this industry in total, ag and food, probably has not been the best allocator of capital. There hasn’t been enough discipline. They’ve overexpanded at times,” Mr Heckman said.

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