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Bunge Limited (NYSE:BG)

Q3 2008 Earnings Call Transcript

October 23, 2008, 10:00 am ET

Executives

Mark Haden – IR

Alberto Weisser – CEO and Chairman

Jacqualyn Fouse – CFO

Analysts

Christine McCracken – Cleveland Research

Christina McGlone – Deutsche Bank

Kenneth Zaslow – BMO Capital Markets

Robert Moskow – Credit Suisse

David Driscoll – Citi Investment Research

Diane Geissler – Merrill Lynch

Vincent Andrews – Morgan Stanley

Christopher Bledsoe – Barclays

Operator

Good day, ladies and gentlemen, and welcome to today’s Bunge Limited third quarter conference call. Well note that today’s call is being recorded. At this time for opening remarks and introductions, I’d like to turn the conference over to Mr. Mark Haden. Please go ahead, sir.

Mark Haden

Thank you, Sara, and thank you, everyone, for joining us this morning. Welcome to Bunge Limited third quarter 2008 earnings conference call. Before we get started I wanted to inform those of you who may not have seen it in the press release this morning that we have prepared a slide presentation to accompany our discussion of the third quarter results. It can be found in the Investor Information Section of our website, www.bunge.com, under Investor Presentation.

Reconciliations of non-GAAP measures disclosed orally on this conference call to the most directly comparable GAAP financial measure are posted on our website in the Investor Information section.

I’d like to direct you to Slide two and remind you that today’s presentation includes forward-looking statements that reflect Bunge’s current views with respect to future events, financial performance, and industry condition. These forward-looking statements are subject to various risks and uncertainties. Bunge has provided additional information in its reports on file with the SEC concerning factors that could cause actual results to differ materially from those contained in this presentation, and encourages you to review these factors.

Participating on the call this morning to discuss our third quarter results are Alberto Weisser, Bunge’s Chairman and CEO, and Jackie Fouse, Bunge’s Chief Financial Officer.

And now I will turn the call over to Alberto.

Alberto Weisser

Good morning, everyone. The third quarter was a volatile time in the global agribusiness and food markets, but the Bunge team managed through the period with skill. We head towards the end of 2008 with a solid liquidity position and continued expectations for a strong full year results. I am proud of our team’s efforts and accomplishments in this record year.

Current market conditions are clearly different than the extraordinary ones experienced in the first half of the year. When compared to the first two quarters, recent results have been pressured by softer demand for feed inputs and slower farmer selling in certain regions as well as reduced fertilizer sales in Brazil. There is weaker overall demand from livestock companies in U.S. and the soy complex is feeling some pressure from the substitutional feed wheats for soymeal in Europe. At the same time, however, soymeal demand is growing in Asia and Brazil and USDA forecasts overall demand for soybean meal to grow by 2% next year. Larger wheat harvest in Eastern Europe have created export opportunities for Ukraine and Russia.

As the first nine months of 2008 demonstrate our industry is dynamic, so it’s important to view today’s weaker market environment in the broader context. Conditions change and value shifts from region to region, product to product, and up and down the production chain as the market adjusts to new conditions via its normal functions. Underneath this change there are basic and steady fundamentals that will continue to generate compelling growth.

World population and living standards in developing economies continue to rise and non-food uses for agriculture commodities are expected to increase. These factors will contribute to a rebound in overall demand. At the same time, ending stocks of agricultural commodities remain below historic norms, which will encourage the markets to maintain commodity prices at levels that provide incentives to farmers to plant larger areas and buy the nutrients necessary to generate higher crop yields.

What we believe is important is to be global and to have a global view of the market, to have a broad product portfolio and to be integrated from farm to consumer so as to capture efficiencies. These qualities provide a competitive advantage over regional or single-value chain companies and Bunge has them.

There are two global strategies for growth. The first is to invest in our core businesses. One example is our purchase of a 50% stake in the Phu My Port in Vietnam. Since 2004, Bunge has had exclusive rights to ship agricultural commodities through the port. As an owner now, we will be able to expand the port's capacity and accelerate the growth of our business in this attractive market. Another example is our recent purchase of a wheat mill and distribution center in Brazil, which will enable us to better serve bakery customers in that country.

Our second growth strategy is to invest in complimentary value chains such as sugar, which is a promising market in which we can leverage our expertise. In September we purchased a majority stake in a second sugarcane mill in Brazil, which we plan to expand. We also entered into joint ventures with the Japanese firm Itochu to develop sugar and sugarcane-based ethanol opportunities in the country. Together, we will complete the expansion of the Santa Juliana mill and develop a new green field mill. The three projects should reach full annual capacity of over 12 million metric tons of sugarcane in the aggregate, within four years.

Since the announcement of the merger, Corn Products and Bunge have been engaged in preparations for the integration of our two companies. Bunge and Corn Products currently anticipate that the special shareholders' meetings of both companies will be held in mid to late December, rather than November as previously anticipated. We are disappointed in the performance of the stock prices of the two companies, but Bunge's belief in the strategic rationale for the merger is unchanged.

Now, I would like to turn the call over to Jackie, who will take you through the third quarter results and outlook.

Jacqualyn Fouse

Good morning, everyone. Thank you for being on the call. We go to Slide three of the webcast slides and look at some highlights from the income statements. Overall, Bunge produced a solid Q3 results in a volatile market environment. With respect to the quarter, having come off a very strong Q2, we saw the impact of a shift in profits, notably for fertilizer into the first half of the year, and we are seeing some additional shift into Q4 for both fertilizer and agribusiness.

For Fertilizer, under the uncertain environment with currency and commodity price volatility as well as tight credit conditions farmers are being cautious in delaying purchases and we are managing our credit risk very carefully.

For Agribusiness, we see slower selling by farmers in the U.S. and Brazil and some impact from the delayed harvest in the U.S. and we will talk a bit more about the segment results in just a moment.

Q3 was also impacted by about $215 million of negative currency impact on fertilizer, U.S. dollar financing for inventories, which will be recovered in future periods as the inventory is sold.

All this being said, we see a solid quarter in Q4. We posted record profits for the nine months and we will post record profits for the year. While we have seen this year in terms of how the business has developed serve as an excellent reminder of why we have to look at our results on an annual basis.

On the next slide, I will talk about the effective tax rate. Effective tax rate remains in our guidance range of 24% to 28%, but has moved to the lower end due primarily to a shift in taxable income from higher tax jurisdictions to lower ones, partly impacted by the impact of the weaker Brazilian real. In the quarter, we also had a $15 million Hungarian tax credit. It seems like not a huge number, but it makes five percentage points on the net income of – or on the pre-tax profit of the quarter.

Looking now to segment results on Slide five, with respect to Agribusiness, oilseed processing margins remain good, but were offset by lower volumes especially in the soy complex. Softseed in Europe and Canada performed especially well. Origination margins are somewhat off recent highs as the uncertain environment is causing farmers to delay selling and distribution margins are also a little off as customers are monitoring the evolution of prices before making purchasing decisions.

With respect to Fertilizer, we saw lower volumes in the quarter than previously expected. This comes about because of the accelerated purchases in the first half of the year and as already said, also related to farmers under the current volatile environment waiting as they are making their fertilizer purchasing decisions currently. We are also continuing to keep credit tight and hold margins as we manage the risk.

I already spoke about the impact of FX on Fertilizer. When we look at the most recent and numbers – volume now for the retail sector, it looks like it will be flat for the year, and we expect to be somewhat lower than that due to our credit policies.

On the Food Products side, edible oils was impacted in the quarter by higher-priced crude oil inventory as prices in the market declined and we expect this to work its way through over the coming months and to have some recovery there in the future.

Looking at some balance sheet statistics on Slide six, we’ve managed through the current financial market turmoil well with the strengthening balance sheet. We saw a significant decline in the quarter especially versus the end of June in operating working capital as commodity prices fell. And we continue to manage working capital efficiently. Our cash cycle has come down about three days since the end of 2007 and about six days in the year-over-years comparisons to September of last year.

Shareholders’ equity is up $800 million since 12/31/07.

Turning to Slide seven, this is just graphically depicted, as we continue to manage the growth of the business very prudently, our debt grows – continues to grow slower than working capital and shareholders’ continues to grow faster than debt.

With respect to cash flow for the quarter and the nine months on Slide eight, we have very strong funds from operations driven by the profit performance both for the quarter and the year-to-date. As I spoke about already, we have a significant decline in working capital in the quarter and this leads us to strong cash flow from operations generation both for the quarter and for the nine months year-to-date. In addition, after CapEx and dividends our net retained cash flow is also positive.

On Slide nine, some information on liquidity that we think is important to highlight especially in the current financial market environment. All of our committed credit lines are undrawn as of the 30th of September. Total liquidity from this source of funds is $3.7 billion. You can see the details of those on the slide.

We have cash of about $1.5 billion as of the end of the quarter of which roughly half is (inaudible). During the quarter, again, in a difficult environment, we raised new facilities totaling about $570 million, and we consider this to go towards refinancing our December bond maturity. These are term loan facilities.

With respect to other maturities, we have begun the marketing for our November revolving credit facility rollover. That marketing is going well and we expect a good outcome on that transaction.

Looking at the remainder of the year, and the 2008 full year outlook, we have maintained our full year earnings guidance of $11.60 to $11.90 per share. Agribusiness should benefit from the harvest in the northern hemisphere and we expect them to produce solid results for the quarter.

Fertilizer fundamentals also should remain strong, though we are now anticipating some moderation in volumes versus what we expected before as we are controlling credit and as farmers are taking their time to make their buying decisions. As already mentioned, we expect a portion of the FX loss in Fertilizer that was recorded in the third quarter to be recovered as those inventories are sold over the coming months.

We also anticipate that Food Products results will improve due to lower raw material costs and actually work through the crude oil inventory that we had in Q3.

On Slide 11, we are giving you some information with respect to an earnings baseline concept. In terms of how we look at our business model, we thought it would be useful to give this reference point, (inaudible) theoretical framework related to return on invested capital, which is independent of earnings guidance, but translatable into an EPS baseline number. We think it’s particularly important to remember this way of looking at our business model especially when the environment is volatile.

As you have heard us say many times in the past, our annual return on invested capital target is a minimum of two percentage points above the weighted average cost of capital. And this target is an important performance measure for Bunge.

As you can see, on Slide 11, our ROICs have been quite stable every year since our IPO and it has exceeded WACC. We currently estimate our WACC at about 8.5%, which would give us an implied baseline target ROIC of 10.5% for 2008, and that translates into an EPS baseline of about $7.50.

Because of the above average performance in both Agribusiness and Fertilizer this year, our results are on track to produce record profits and returns that are five to six percentage points above weighted average cost of capital, clearly above the baseline target.

So when we think about our stated long-term target, constant annual growth rate and EPS of 10% to 12% per year, we think about it as growth in baseline profits linked back to our return on invested capital target.

And with that, on Slide 12, we remind you of that average EPS growth of 10% to 12% per year range, which we continue to see as very doable. Again, it’s an average. It can be a little higher, little lower any given year, but we are holding that range. And we remind you of the average annual growth that we would expect over the next five years in our business segment volume of 6% to 8% Agribusiness, 5% to 7% in Fertilizer, and 3% to 5% in Food Products.

With that, we will open the call up to questions and answers. Thank you very much.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) And we will go first to Christine McCracken from Cleveland Research.

Christine McCracken – Cleveland Research

Good morning.

Alberto Weisser

Good morning, Christine.

Christine McCracken – Cleveland Research

Alberto, can you talk about the current credit situation in Brazil and what gives you the confidence at this point that the farmers are going to come back in and buy fertilizer and plant crops as – this year especially given the drop in commodity prices?

Alberto Weisser

The environment is – there are two components that show it that the environment is different for the farmer. One is that the farmer is a little bit unsure by so many moving parts. So, on one side the real is weakening, which is extremely positive for the farmer, but also for us, and at the same time that means that the input costs are also going up and some commodity prices have come down in prices. So, as these movements have been quite strong, the farmer has been a little bit unsure when to move. So he is delaying it to the last minute. And – but, net-net, this is positive for the farmer because the income line is dollarized and this is going up, and the inputs, which are also dollarized, but in a smaller amount, lower, so the farmer is in a better position to decide now to buy and lock in the sales.

Now, on the credit side, it is tougher. The input companies like us and others are much more reluctant in giving credit. But this has been picked up first by banks and more recently also by money funded from the government through the banks and especially Bancodo Brasil. So, the liquid – the credit situation or the liquidity is much less than it was before, but it’s moving. The fertilizer sales are – if I am not mistaken, based on ANDA something like 4% up versus last year. And the new expectation from ANDA is that it will be flat vis-à-vis last year. So, it is a sign that it’s moving not as fast as we originally thought, but it’s moving.

Christine McCracken – Cleveland Research

What’s the risk though, I mean if you listen to some of your competitors that have been really aggressive with expectations what’s – and they have recently kind of backed off the growth expectations for Brazil. Why do you believe that farmers won't but back on input use dramatically at this point?

Alberto Weisser

The – I am more optimistic because you have to remember that breakeven cost has come down for the farmer. The last number I saw was it at $9.80 per bushel for soybeans in Mato Grosso. And for Parana, we always give – only gave Mato Grosso, but in Parana, which is closer to the coast, is at $6.50. So, with this much weaker real the profitability for the farmer is going really up. So the farmers would like to plant much more if they would have more access to credit. So – if you – if I – my view at this – this is a very healthy environment. This is going to be very positive also for next year. A weaker real and weaker productions. There was going to be expansion for – there is room for expansion next year. So, I see the environment today quite positive. It might have been better if we would have seen a higher volume, but I think it is a healthy environment. The whole structure is much healthier and I like the fact that we are not going to see a major expansion in production because it makes – it’s better for ’09, better for ’10. You will remember that we had these excessive expansion in ’04. That created a problem in ’05. So, personally, as a seller of inputs to the farmers, I am happy the way the situation is going at the moment.

Christine McCracken – Cleveland Research

I will leave it there. Thank you.

Alberto Weisser

Thank you.

Operator

Next we’ll year from Deutsche Bank, Christina McGlone.

Christina McGlone – Deutsche Bank

Hi, good morning.

Alberto Weisser

Good morning, Christina.

Christina McGlone – Deutsche Bank

Alberto, just touching on Agribusiness, part of the weakness in volume seem to be more on the supply side, so farmers not giving up beans and (inaudible) harvest immediate effect that the U.S. was sort of out of beans because we had to make up for Argentina early on in the year. Can you talk about now that we harvested nearing completion and you are able to get the beans, how do you expect the results to trend given the demand outlook?

Alberto Weisser

The – it’s on both sides, Christina. It’s both on the demand side and also on the supply. So the supply has been a little bit delayed in U.S. also because the harvest has come in a little bit later. And so that’s why our grain origination business didn’t do the movement we normally do, but it will shift to the fourth quarter. And in – from Brazil, the farmer just was sitting also the same way as he was or she for the decision on inputs. It was also thinking about what’s the right movement to do on the sales of grain. But the – so, it’s difficult to see how much is from origination, how much is from demand. On the demand side, it was weaker in U.S. The livestock industry reduced it. It was more sale in the first half of the year. So there was over production of livestock of meat. And now they are pulling a little bit back. So let’s call it – there was a shift also from the second half to the first. And we have to remember also we had two weak years in the past of wheat. And therefore we picked up some feed wheat customers and sold soybean meal to them. And as the wheat production was good this year in the northern hemisphere both in Europe and in United States. So, we are giving some back – some business back to the feed wheat industry. That’ why both sides have been a little bit weaker. But I – that’s why we call it short-lived or short-term. This for us is something like perhaps maximize six months and then the demand should be picking up again and that’s also one of the reason probably USDA is expecting the soybean meal demand will be up next year by 2%.

Christina McGlone – Deutsche Bank

Okay. And on the Fertilizer side, can you talk about if the pipeline, the amount of inventory in the whole industry, and if import parity is holding? And then also, October is such a key month for sales. How were October fertilizer volumes?

Alberto Weisser

The inventory is good. It’s probably a little bit on the high side. And so by the end of the year we probably are going to have a little bit more inventory than we planned, but different than 2005. Nobody is really discounting it and selling it. So the – I expect the volume to be in line what ANDA is saying, flat vis-à-vis last year. So it will flow, but slowly and carefully. We also have to remember that many – much of the soybean and corn fertilizer were sold in the first half. So, it’s a little bit – from the volume point of view a little bit worse. It’s early to say. You know the real was going up. I saw it this morning, it was devalued again. So the farmers are trying to cut it very, very close to the last moment because it’s all in their favor. Because the weak real is all – it goes directly to the – their bottom line, it’s all the income then.

Christina McGlone – Deutsche Bank

Okay. So, it sounds like import parity is holding?

Alberto Weisser

It’s holding very well. So that is why they hedge to our funding. It’s perfect. We are being able to charge the prices we need to – so the hedge is working perfectly and the international prices have come a little bit down. But because of the devaluation so the impact is less there.

Christina McGlone – Deutsche Bank

And last question, how should we think about Sofrina [ph]. I mean my sense is that the planted acreage would be down and fertilizer intensity would be down in a big way. Can you give any color on that?

Alberto Weisser

It’s a little bit early to say because it depends also exactly how the – this planting goes, how the crop goes, what the intentions are in U.S. to plant corn. I think it is a little bit early.

Christina McGlone – Deutsche Bank

Okay. Thank you.

Alberto Weisser

Thank you, Christina.

Operator

We will now move on to Ken Zaslow with BMO.

Kenneth Zaslow – BMO Capital Markets

Good morning, everyone.

Alberto Weisser

Good morning, Ken.

Kenneth Zaslow – BMO Capital Markets

A couple of questions. One is, how much can a weaker real offset or how much can it offset lower fertilizer prices in 2009? Can you give us the sensitivity here?

Alberto Weisser

Look, I don’t know what you mean with offset. The –

Kenneth Zaslow – BMO Capital Markets

How much can – if fertilizer prices come down and the real weakens, what’s the relative sensitivity to each other?

Alberto Weisser

Look, let me answer perhaps in a different way. I would say that all the income of the farmer is in dollars. So, a 30% devaluation is a 30% increase in net sales. And 60% of the input costs of the farmers are in dollars. So the farmers’ margins is expanding very nicely. So, the farmers are smiling with this devaluation. And it’s not much different also for Bunge. I think probably if you – Fertilizer and one-third of our Agribusiness is Brazil or not one-third but around 20% let’s say, little bit less than 20%. 45% of our costs in Bunge are in Brazil. So, this has a positive impact on us as well.

Kenneth Zaslow – BMO Capital Markets

So, a 10% move in call it the Brazilian real has what impact to Bunge’s earnings in 2009?

Alberto Weisser

It’s a little bit early to say, but it’s clearly an upside. When you remember ’02, ’03, there is a clear upside for that. We didn’t quantify it because these devaluations are too much and I don’t know if they are sustainable. So, when we do our budget, we don’t count on it because we have to be very careful with the cost. We have seen how strong it has gotten. But there is upside – there is – when you remember ’02, ’03, there is significant upside.

Jacqualyn Fouse

Well can (inaudible) a direct relationship where you can do it exactly like that. It depends how the currency evolves over the course of the year on an average basis. Obviously, any given quarter also has some impacts from the quarter and number in there. The – so, the best thing to do is just look at some of the numbers that Alberto just gave you with respect to the percentage of our cost that are real denominated and what the benefit then should be there under different exchange right [ph] scenarios and in thinking through those the farmer economics, the way that Alberto highlighted in as well.

Kenneth Zaslow – BMO Capital Markets

Okay. In terms of the CPO deal what’s happening with that? Do you need to sweeten the offer? How do you see that play out?

Alberto Weisser

We are working actively towards closing the deal. We have significant amount of integration work. I am excited about it. I think it is – we are seeing more and more opportunities. We are seeing – this is clearly transformational for both of us. And there is more opportunities for growth than I thought. I think there is strategic rationale and logic. We are working towards it. I am optimistic.

Kenneth Zaslow – BMO Capital Markets

Do you think the deal actually closes?

Alberto Weisser

I think so.

Kenneth Zaslow – BMO Capital Markets

And the CPO shareholders you think will be fine with it?

Alberto Weisser

I think so. This is a merger, Ken. I think the current stock prices are completely disconnected with the reality. If I think about – we are going to make close to $12 EPS this year, and when I look at next year we talked about the baseline. This is a baseline. So, when I look at the next year, we are not ready yet to make guidelines but I see some good upside there. And I look at our stock price. This is a P/E of three or four. This is not realistic. Even when we went public, it was 10, no one knew it – knew us. And it was 10. So that is why I like the concept the way we structured the deal. It’s a merger. All the upside is for both shareholders. Corn Products shareholders are going to own 21% of the new company. So, everything we will do it’s in the benefit of them. So, the current stock price obviously is irritating, but it does not give any sign of the value of the two companies.

Kenneth Zaslow – BMO Capital Markets

Why don’t we buy back stock, and I will go back into the queue. And you are saying you are irritated by the stock price, how come – and you are flush with cash, why don’t you just buy back your stock? It’s a good investment.

Alberto Weisser

I am not – let’s say ,I am not irritated with the stock. I look at it – I am frustrated, let’s say, like that. But, Jackie, why don’t you tell it – all the thought on buying back stock, so –

Jacqualyn Fouse

Well, Ken, obviously, we look at all of the investment alternatives that we have at any point in time and whether it is CapEx or investing in working capital or M&A or potentially financially oriented things like buying back shares. But it’s – I think one has to put into perspective the fact that we are managing this business for the long term. Those investment decisions need to be long term decisions based on the economic value-add and the returns that we expect to generate in perpetuity, basically. In the current environment we just need to keep that in mind. We need to keep in mind the need to balance liquidity concerns given the volatility that we have seen and our expectation for how the credit markets are going to function over the coming months and even year or so. So, we are looking at all of that and we’ll balance all those considerations as we take those kinds of investment decisions.

Alberto Weisser

And you also have to remember, Ken, we are seeing that this – we saw a stress in the system as prices were going up. And there is probably even more stress as the prices are coming down. We have to keep our powder dry for perhaps some opportunistic moves we could do.

Kenneth Zaslow – BMO Capital Markets

At $34 it seems like opportunistic would be buy your stock back, but I will get back into queue.

Alberto Weisser

We think about it. Don’t worry about that. So we – but we have to debate and compare it with all kind of other things.

Kenneth Zaslow – BMO Capital Markets

Okay. I will get back into queue.

Alberto Weisser

Thank you.

Operator

And from Credit Suisse, we go to Robert Moskow.

Robert Moskow – Credit Suisse

Hi, thank you. Another question on Fertilizer. Your guidance for fourth quarter implies that you will get some of that foreign exchange loss back in the fourth quarter, but not all of it. How much inventory are you sitting on right now and is it your view that there will be enough of a rebound here that you can get rid off or so, what you have, or are you willing to sit on it even longer into 2009? Thank you.

Jacqualyn Fouse

Let me start, Rob, and Alberto might want to jump in. I mean as Alberto already spoke about, we do have a bit more inventory than we normally would have. Part of the reason for that comes back to us managing the credit exposure extremely carefully. So, if it’s a question of trading off and maintaining margins. So, if it’s a question of trading off the margin we would rather give the volume right now to hold the margins and to make sure that we end up with the credit profile that we want to have on a go-forward basis as well. So to – with that in mind, we have maintained the guidance and are looking at the quarter with a view that even with somewhat lower volume that might have previously expected we still expect to recover a significant amount of that currency. We are seeing the ability to do that in the pricing. And we have seen that throughout the month of October. It’s a very dynamic process. But we are not counting on getting all of it back because we do have a bit more inventory than normal. And so we know it’s going to take a little bit longer to move that inventory.

Alberto Weisser

I would add that these excess inventory is perhaps one month more than usual. Instead of four months we might have five. But it doesn’t worry us because most of these products are imported time [ph] of products and anyway for the season, for the corn, for the sugarcane, for coffee, so this is good value we are sitting on bought at good prices. So it is not too much.

Jacqualyn Fouse

The current inventory cost, it’s a very important point, is quite good for us given where international prices are. So we are very comfortable with that. If it takes us a little bit longer to move it and we are maintaining the margins, absolutely fine.

Robert Moskow – Credit Suisse

Can I ask one follow-up question. Alberto, you started your remarks by saying that emerging markets are in better shape than they have been historically and I guess what you are saying is that they are – they can withstand these economic crisis better than they have in the past if protein consumption remains high, I imagine, or grain consumption does. We just did a little bit of work on financial crisis in Asia and Russia in the late 90’s and we noticed one to two years of declines in protein consumption in those countries. And I am wondering what – that clearly isn’t your view? But could that be a scenario that could come around for the next couple of year and if so what does that mean for demand for your oil seeds? Couldn’t it be much lower than 2%?

Alberto Weisser

I don’t think so, Rob, because we have to also remember that – look at this year where we were and extremely high soft commodity prices, very high freight costs. The freight costs are tremendous – have a tremendous impact in us selling the products around the world. You have to remember that much of the grain and soy –proteins have to be shipped around the world. So this has come down dramatically. The freight cost, the Panamaxes are around $12,000 a day at the moment. They used to be $100,000 a day. So the commodity prices came down 30%-40%. So the products that are – the end product is cheaper and it moved. Now, is there going to be an impact on the global demand, probably yes. We have seen in the U.S. We have seen it a little bit in Europe. We are seeing it in Asia. The – our estimates for growth in Asia continues to be in the6%-7% area of grain and proteins. You know, we have seen now 28 years in a row of growth in oilseed consumption, come crisis, go crisis. You know, this is very basic stuff. You might see a little bit reduction in protein in the meat area here and there, but we – the meal – I don’t remember when we had – since I am with Bunge 15 years, we only had one year where I remember where it was flat, in 2003, where we had this issues in Europe and where – I don’t know, it doesn’t matter, but – so, I am confident. We just traveled around South America, Asia, and there will be a little bit less growth. There will be some impact but I don’t think we are going to see a negative number in meal and oil consumption next year – grain, meal, and oil.

Jacqualyn Fouse

Rob, you know, you specifically mentioned Russia, but the – I have lived through that late 90’s process in the consumer packaged goods industry very directly. The drivers for the process at that time were different and well – and the whole situation in that particular country was different. So I think you have to sort of look at each process and what the elements were driving it and the particular larger countries situations at the time when you think about what’s going on today too.

Robert Moskow – Credit Suisse

I think that’s true, but the current crisis could be worse, we don’t know.

Jacqualyn Fouse

Yes, maybe, and from a financial standpoint, but different – energy processes are still different today than they were in 1998 and even though they have come off their highs and so on so forth. Just something to think through.

Alberto Weisser

You know, you are right. We have to think about it. But that’s the beauty of our business model. If there is going to be less demand, so how much is that 1%-2% and we will adjust ourselves. When you think about what we had to do, we probably cut 75% of our costs in Brazil over the last 10 years. We would be able to do that. We have to remember at the same time there normally is a down-trading. You might have less consumption of the more expensive proteins and you have – and less cattle and beef and there is lamb and so on. But it ends up being more chicken. And chicken is a very high consumption of grain. Also – I am confident, Rob.

Robert Moskow – Credit Suisse

Very good. Thank you very much.

Alberto Weisser

You are welcome.

Operator

Next we will hear from David Driscoll with Citi Investment Research.

David Driscoll – Citi Investment Research

Great, good morning, everybody.

Alberto Weisser

Good morning, Dave.

David Driscoll – Citi Investment Research

So, I wanted to start off by asking you a little question here about guidance. I really want to understand, Alberto, what’s changed so you have – from the way I look at the guidance, $0.30 reduction in your ongoing EPS guidance, meaning that you “maintained” guidance, but the one-item were up $0.30, thus the ongoing number is down. Can you talk about why that has happened and in particular which division is really the culprit here.

Alberto Weisser

Yes, look, Dave, talking about future is always difficult. So when I think about where we will end at $1.6 billion net income, which is a dramatic increase over last year and I feel very good about it. Now, this – when we talk about estimates, $100 million in one or the other direction I think that is – I find it very hard to get it so precise. Now, what has changed I think what is a little bit different than when we talked to you before is we had some signs of a little bit slower demand. And so we had thought about it. We have perhaps built a little bit of a cushion into our guidance. And so – but it’s probably a little bit more and we see some shift of – from third quarter. Some of them was a little bit more in the second quarter than we thought. It was also – there is some shift into the fourth quarter. So, I would say – overall I would feel that the demand is a little bit weaker than we thought.

Jacqualyn Fouse

Yes, I mean, David, your math is correct. So that’s just reflecting the things that Alberto has just spoken about and the fact that we want to be a little bit careful with respect to Q4 even though I think if you come back to what the implied Q4 EPS number is, it’s a very solid quarter that we expect. But given the uncertainty with the timing of the recovery of currency impact and some things like that and we are just watching the environment as to how this play out in the northern hemisphere and so on and so forth. We are being a little bit careful about the quarter but we think it’s going to be a good quarter and that’s reflected in the maintenance of the guidance where it is despite the $0.30 one-timer in Q3.

David Driscoll – Citi Investment Research

Jackie, on Slide 12 of your presentation, you talked about the average EPS growth of 10% to 12%. I got the sense that you were trying to suggest that 2009 would grow at that rate over your ’08 numbers. Is that what you were aiming to do and if not what your comments on ’09 right now?

Jacqualyn Fouse

I will give our ’09 specific guidance with good quantification around that and the assumptions behind it as usual when we have the full year results announcement. What I wanted to do is just how the business model has performed with respect to returns in the past. Our expectation for that baseline performance in the future, how that’s linked to EPS and the fact that we are maintaining a long term view that we can produce average EPS growth of 10% to 12% on that baseline. That’s what I am trying to highlight because it feels like the current market environment has a little bit lost out of the fundamentals of the business model what our long term performance should look like.

Alberto Weisser

And, Dave, on – let me give you a flavor. This idea of – and Jackie’s presentation about giving you the ROIC is in this – the market at the moment where people having some doubts about where the business is going. This is another reference. And obviously this is a combination of – we have many businesses inside Bunge. We have officially four segments, but below this we have many segments, and each of these segments has their own baseline. But if I look over the next – in the mid-term future, ’09-’10, I think we should be doing quite well because Food, Milling, Edible Oils, Agribusiness should more or less be in the – their own baseline, and Fertilizer should be doing better. The fundamentals continue to be positive for strong prices both on potash and on phosphate. The demand is there. So until the new mines come up and stream, we are going to have solid picture there. And we have a new component that we have not factored in there in all of this, which is the weaker currencies. We have talked about the weaker real. And also it will help us the weaker euro. We have to remember we have by now already 25% of our business in – Agribusiness is already in Europe, and softseeds, in soybeans, in sunflower. With the new plants up and running there is going to be some upside there.

David Driscoll – Citi Investment Research

Alright, so at the sake of being completely repetitive here, what you are saying is that your ’08 baseline at $7.50, Alberto, you feel the future is better than that. Your ongoing guidance is for 10% to 12%. Thus, even though you are not giving ’09 guidance, you sort of are because you are saying that the $7.50 times the 10% to 12% should be at least one thesis on why these numbers should pencil out into something better than that in 2009 although you feel the general environment is better. Did I capture your comments right?

Alberto Weisser

I will leave it at that. The only thing I will say is keep it as a flavor and we will give you in January – you know, this is – we do this very, very careful, very serious – we are in the final phase of our budget process. The markets are moving all over the place but I give you a little bit of a flavor how we are feeling. And so they are different moving parts. We have been accused of being conservative. So that’s why we introduced also the concept of baseline. So, I think this is important to see. Our business model is based on 15 – nearly $15 billion of assets in five facilities with 25,000 employees working. We have to be – we have to remind everybody this is a sum of many, many small parts that have to work together and we think about over the time return on invested capital. So, if there are years where we can perform very well, like ’08, and we feel good about ’09, that’s good. But we – you will get the guidance in January’09.

David Driscoll – Citi Investment Research

Do I have time for one more question?

Alberto Weisser

Yes.

David Driscoll – Citi Investment Research

Thank you, Alberto. What’s happening with the current local prices for wholesale phosphate in Brazil and if you could bring that up both sequentially last quarter and year-over-year I think that would be helpful. And I sure I want to have a follow-up right here on this particular point, but I think it’s fairly critical.

Alberto Weisser

I will refer you to – perhaps Mark can help you later. The only thing I know exactly, Dave, is that what is important for us is the input parity working. How we will be able to charge the international prices and the answer is yes. So – which – even with a higher devaluation, I think it is important. But, Mark, perhaps you can either add something or talk to Dave later.

Mark Haden

Yes, I will catch up with him later.

Alberto Weisser

Yes.

David Driscoll – Citi Investment Research

Alberto, so my follow-up on this would be kind of two points. First off, you have made a strong argument here that the devaluation is good for farmers. Then later in your comments you said that your own expectations would not necessarily assume that the devaluation that has happened recently would be – that the real-dollar exchange rate would be maintained at these prices. I would completely come with a totally different conclusion than you have come with that a devaluation at this point in the planting season at Brazil is very bad. It raises the input cost to the farmers and the farmer has no true expectation that they will be able to receive the theoretical value for soybeans come April of next year. So if you in fact have an appreciation of the currency from now till April, it’s the worst of all worlds. Your foreign currency – your input cost went up as the farmer in Brazil and then your bean price goes down when you look at the revenue compensation. So your breakeven analysis, it is critical that it assumes that the real-dollar exchange rate stays constant, but then later you said you didn’t think it would. So can you help me match up these comments and why you think that this so positive for the farmer today?

Alberto Weisser

Because the – most of the farmers when the buy the inputs they already sell – they already fix their – the sale of the grain. So they are – they don’t – they – some of them do speculate, but most lock in their margins by buying and selling. Now the – there is obviously the risk you are saying that some of the farmers might be buying now the ingredients at these high prices and the real gets stronger again next year and then they might be in trouble like we had before. And that’s probably one of the reasons the volume is down so some farmers don’t – won't take the risk. So those who are moving, are going to make good money because they are locking in their margins. And the margins have expanded for them.

David Driscoll – Citi Investment Research

Great. Thank you very much.

Alberto Weisser

You are welcome.

Operator

Next we will hear from Merrill Lynch, Diane Geissler.

Diane Geissler – Merrill Lynch

Good morning.

Alberto Weisser

Good morning, Diane.

Diane Geissler – Merrill Lynch

Hi. Just a follow-up on the CPO. What is the contingency plan if the CPO shareholders vote no. You know I appreciate your comments about – as you have worked through the transition process you’ve become more and more enthusiastic about the opportunities that the transaction involves for you, but you existed for a hundred years without a corn wet milling business. So, can you just talk about what would be the contingency there if you get a no vote from CPO?

Alberto Weisser

We have lived alone for 190 years, Diane, so – we are from 1818, not me but the Company. The – I would feel very comfortable about it. I think these markets are all over the place. It will work out fine right. Now, having said that, Bunge is in the best position ever I think when you say – look at our record earnings this year after already a good year last year. The highest level of capitalization we ever had, the highest position in liquidity. I think we are in oilseeds, and grains, and fertilizer, we are very well positioned. I probably never felt so good about where we are. So, it’s – we are ready for – we are prepared for any of these scenarios. So we feel very strong. But I am optimistic about it. It will all come together.

Diane Geissler – Merrill Lynch

Okay. And just on the point of your capitalization, Jackie, I think I might have missed it. You said that you had successfully refinanced the bonds that are due in December. Was that a term loan?

Jacqualyn Fouse

Well, we – I mean what happened during the quarter is we did – we raised a couple of three-year term loan facilities. They add up to $570 million. And we are considering that to basically go against the bond maturity in December. So that’s new money that we raised during the third quarter so that the bond maturity in December can come from there and it doesn’t have to come from some place else.

Diane Geissler – Merrill Lynch

Okay, perfect, I appreciate that. And then just a question on the sugar mill. You talked a little bit about it in your press release and in your commentary what you are doing there through your JVs. Can you talk about – how much have you invested in the various pieces? You may not want to talk about it individually but can you give us an idea about the investment in that business and then would you – should I assume that your ROIC target that you have given in your presentation today would be applicable to that and that’s how we should think about what’s the kind of returns that investment will have over the next two to three years?

Alberto Weisser

Look, I don’t have the exact numbers here, Diane, but to give you an idea, probably each of these mill, once it is all up and running with the four million tons that we want to have it it’s something like $300 million to $350 million. Obviously, we have bought them – some of them on the early stage, some of – one of them is a green field and we have – our agreement with Itochu obviously is good for both. It is – there is some entry payment they made but it’s at the very beginning. It is much more about investing together. So I think we are very excited about working with Itochu because it’s a – we have been working with them in Asia, in Japan, and it’s a very important way also to export ethanol into that market. The returns – we see them positive. Obviously, with the weaker real they improve and I don’t know exactly how your question was in terms of return on investments on sugar.

Diane Geissler – Merrill Lynch

Well, I am presuming that your – the hurdle rate you use with respect to investments in sugar-based ethanol or whatever else you are doing in sugar, the commodity itself would be similar to your consolidated return targets and I guess my question is really what is the timing on those? When we should expect these assets to start –?

Alberto Weisser

The hurdle rate is higher than – our hurdle rates normally are higher. These are more risky countries. There is also – the hurdle rates are higher. They are normally higher. And – but in terms of – it takes us probably four years until we have build it out completely. And first the two brown fields we have – we call it brown field because we already bought something which is 1 million, 1.5 million tons. It’s – first of all, it’s only ethanol. But soon we will be building the crystallization facilities also for sugar and the co-generation turbines. Each of these mill has a 70 megawatt co-generation turbine to sell for eight months electricity to the grid. So these are all mitigating factors. So there are really components of it. It’s sugar, the ethanol, and the electricity to it. So, the returns, because it takes four years until you completely build it out but I think the normal type of paybacks are in some of our other businesses.

Diane Geissler – Merrill Lynch

Okay, great, thank you.

Alberto Weisser

Thank you.

Operator

And next we will hear from Vincent Andrews with Morgan Stanley.

Vincent Andrews – Morgan Stanley

Good morning, everybody.

Alberto Weisser

Good morning, Vincent.

Vincent Andrews – Morgan Stanley

I am just going to ask you to clarify for me because I am not clear. You have thrown out that $7.50 is your baseline earnings and we all know what guidance is for this year, and at one point, Alberto, you said you saw a good growth going into next year. I just can't tell whether that’s off – whether you mean that’s off and I am not asking you for guidance or how much things are going to go up or down next year. I just want to understand whether you are talking about things looking good off of $7.50 or off of the guidance for ’08?

Alberto Weisser

I was talking about the baseline, the $7.50, and I was giving some flavor how we feel about the future for all the three segment lines. I was talking off the $7.50. And we really don’t know because we are finalizing our budget for next year, but I was giving – I know it’s a little bit frustrating for you, but that’s the way it is, but we are in the process where I was – either I am optimistic about the ’09-’10 because it’s either baseline or up – so but it’s too early to tell you where exactly we will be.

Vincent Andrews – Morgan Stanley

Okay, that clears that up. And now I just wanted to ask you in Fertilizer we have seen sulfur which is obviously one of your key inputs. That price has come down materially and I believe your contracts are from October till April and then April to October. Have you re-contracted your sulfur cost yet?

Jacqualyn Fouse

We have done – hi Vincent, this is Jackie – we have done a – most of those. However, we have shortened the terms of the contracts on a lot of it to three months from six.

Vincent Andrews – Morgan Stanley

Is that because you have an expectation that prices can go lower from where you were able to contract?

Jacqualyn Fouse

Potentially.

Vincent Andrews – Morgan Stanley

Okay. And so (inaudible) so I guess my point would be that it seems like with the real moving in your favor, your input cost coming down, and you are saying you are still getting the U.S. phosphate price, which has come down somewhat. Did that net out to your margins in Fertilizer being about the same or potentially even better?

Alberto Weisser

Yes, could.

Vincent Andrews – Morgan Stanley

Okay. And then obviously the offset would be that your volumes are going to be weaker in the fourth quarter and that we don’t know what time [ph] will look like next year.

Alberto Weisser

Yes, exactly.

Jacqualyn Fouse

That’s correct.

Alberto Weisser

Yes, right. We learnt it from ’05. We are much more careful on credits.

Vincent Andrews – Morgan Stanley

Okay. I think I had one other thing. Last year which was – no, that’s it. I will follow up with Mark later if I have any –

Alberto Weisser

Okay, thank you.

Vincent Andrews – Morgan Stanley

Right. Thanks guys.

Operator

And from Barclays we will go to Chris Bledsoe.

Christopher Bledsoe – Barclays

Good morning.

Alberto Weisser

Good morning, Chris.

Christopher Bledsoe – Barclays

If I think about where the stock is trading here and try to get into the market head if I can and may be kind of backing into what the market is thinking right now for an ongoing earnings number for Bunge, if I were to just kind of apply maybe a historical 10 or 11 time multiple I would basically be backing into a number that says the market thinks that your ongoing earnings is kind of in the $3.50 range, which would put you all the way back to 2003 earnings level. To me that seems pretty severe and clearly you agree –

Alberto Weisser

I think it’s an (inaudible).

Christopher Bledsoe – Barclays

Yes, and I think if you are thinking about an ongoing earnings number or a baseline EPS number closer to $7.50, I guess my question is – would really be basically a doubling of what the market is implying, what type of other investment projects could you envision given you are better than a 100% return.

Alberto Weisser

We think about that also, so –

Jacqualyn Fouse

And – I obviously have to agree with the math, so – but that 100% return would be –

Alberto Weisser

One time.

Jacqualyn Fouse

A one-time or in some fairly short time horizon, so we are – I understand it which is why – as I said, we analyze all of our investment opportunities and we will balance all the considerations and I will leave it at that for right now. But when we are thinking about our core business and CapEx spending for that matter sort of core working capital volume growth and that being an investment how we look at M&A projects and Alberto mentioned in the current environment potential opportunities also because of depressed valuations to may be have some attractive things there. Liquidity, given the current – but when we look at the investment opportunities and all those other things have a very, very, very long time horizon. And a share repurchase decision is a different decision. It’s partly related to capital structure, but it’s partly related to – especially right now the way people are looking at it, the short term return consideration. So we are just thinking all that through. We don’t want to take a decision for the wrong reasons.

Alberto Weisser

And as far as I understand we could anyway not do it now before the special shareholder meeting with – of Bunge and Corn Products, so we could not do it now anyway.

Christopher Bledsoe – Barclays

Got it. Okay. And then just as a follow-up, the ROIC numbers that you gave on Slide 11 and then also some of the info you gave on Slide seven, I appreciate that, and it’s all very helpful. What I have a more difficult time with is that – the 2001 to 2007 period. For the most part during that period you are generally talking about an era of inflation across the grain complex and you are talking about an era of – until more recently CapEx spending in the industry on the decline. And so I guess I have a hard time understanding why – if today’s environment is characterized by deflation and CapEx spending across the ag space is at peak levels in terms of expansionary spending, why wouldn’t there be a risk to that 10% or so type of baseline ROIC?

Alberto Weisser

I would argue a little bit differently, Chris. If you look at the past, ‘03, it was an inflationary environment, and ‘04 was deflationary. And just to see it, we made more money in ‘04 than in ‘03. We generally make money with prices up, down, flat. High prices are good for farmers, low prices are good for end customers. We are in the middle of it. It is a little bit different for fertilizer where we need the farmers to have enough high prices so that they can operate. So, we are really looking at it in an environment of – it doesn’t matter how it is. That is the way we build our business model. I would argue that over the years, this industry has become more rational, more disciplined, and the last time we had a little bit higher expansion of CapEx, the need was in the beginning of ’06 and we saw that before ’06, so in the beginning of ’06 – we had lower margins because of the excess production in Argentina. That was the last time we had too much CapEx, I am talking about oilseeds. When I look around the world, the market is digesting the new plant we have in Indiana in Claypool some of the expansions we have. And we have ourselves adjusted it and had longer downtime for maintenance. So, I believe that from the CapEx side, in the area of oil seeds and fertilizer and grain, I am very comfortable. It is less fragmented, more rational, and there is not too much excess capacity. So, that is one area I am not worried.

Jacqualyn Fouse

Well I think you have also noticed over the last few years us growing our CapEx spend in the lesser developed markets relatively more than in the developed markets. So, you could even continue to see a lot of focus on maintaining the right level of capacity utilization and even some tweaks in the network in developed countries to address capacity issues as well, but continued expansion for sure and at higher rates outside in the emerging markets. As you are seeing them too in Eastern Europe and Asia, and those trends will continue.

Christopher Bledsoe – Barclays

So I guess investors’ concerns are that you are building for a global sort of growth trend or off of a base – you are building capacity off of a base that represented sort of global demand that is perhaps at risk. If that’s investors’ concern, it’s really, I guess, simply your response would be that it’s not that’s it’s not your view that global demand will flow or will reverse. Is that fair?

Alberto Weisser

Yes – absolutely. When you think about – let’s take this USDA scenario for next year, 2% growth of soybean meal and 4% of oil. So, there is no new plant. All the plants that we need they are existing now, so there is no new plant going to be up next year. So, there is already going to be additional demand. So, you would see capacity utilization going up next year. If it goes back, as we expected, to a 5% growth rate the year after, you need 10 million tons a year of oilseeds. So, 10 million tons of oilseeds means one or two additional crushing plants. So, we are very comfortable with that scenario. Also, when you think about the expansions we are doing in sugar mill – in the sugar mills, I think that there is older – if you just look at the domestic demand of Brazil and the growth in sugar worldwide, the world will need between 250 and 300 additional sugar mills over the next seven, eight years. So, and there are only 80 that are either being built or projected. So, I also don’t see an issue there. On the milling side you have seen all the investments we have done is to substitute. There were two Brazilian mills means we shut down five and expanded two. So we rationalized efficiency movements –

Jacqualyn Fouse

Upgrading.

Alberto Weisser

Upgrading and we bought one from Cargill recently in Brazil. So, this is all about consolidation. We are very, very, very careful. In our business, I completely agree with you, too much capacity is problematic. So, we are very, very focused on it.

Christopher Bledsoe – Barclays

And what you see across the industry doesn’t concern you at all either?

Alberto Weisser

Not at all.

Christopher Bledsoe – Barclays

Okay. Well thank you very much.

Alberto Weisser

Thank you, Chris.

Operator

Next we go back to Christina McGlone. Christine?

Christina McGlone – Deutsche Bank

Thanks for the follow-up question. Alberto, for a while the industry backed off on contracting forward with farmers to buy beans but now that commodity prices have come back, is that picking up again and back to normal?

Alberto Weisser

You are talking about the advance to farmers?

Christina McGlone – Deutsche Bank

No, the – just –

Mark Haden

Forward.

Christina McGlone – Deutsche Bank

Yes, right Mark, forward purchasing.

Jacqualyn Fouse

It has come back some especially in the U.S.

Alberto Weisser

Only in the U.S.

Jacqualyn Fouse

We are probably still not back to the same levels that we saw a year ago, but it is coming back versus a very small forward book that we have had for the past two months.

Alberto Weisser

Let – okay, do you mean U.S. In U.S. let’s say the limitations of the bigger players from a liquidity point of view and worry about margins (inaudible) that it is each is much more. Today it is much more, the farmer is not so much interested than we not giving the opportunity.

Christina McGlone – Deutsche Bank

And then what about Brazil? So you answered to Driscoll that farmers today, they would buy the fertilizer and then they forward sell their beans to you. So, is the industry willing to purchase those beans in Brazil?

Alberto Weisser

I mean we are buying it from the farmers, right? We are buying the beans from the farmers and we are going out to every farmer at the moment saying whoever didn’t sell it yet, sell it to us because this is a very attractive moment. So we are making sure those who have done, they locked in the margins that they are in good shape, and those who didn’t do it, we are going after them to make sure that they do it now.

Christina McGlone – Deutsche Bank

Okay. And then last question, your Russian plant is supposed to open the end of the month and things are chaotic there. I mean how is that going, what the environment look like?

Alberto Weisser

I think the – I don’t know what you mean by chaotic, I think that where we are – things are fine, people are eating, and they need more. We are going to inaugurate our plant at the end of the month in Voronezh. And I think we are excited about it. It took us much longer. We are a little bit ashamed, but it is our first plant in Russia, so we learnt. It is running well. It is in a test phase. We are quite happy about it. It’s in line with what we expected and should have a positive contribution next year and the same is valid for Ilyichevsk in Ukraine as well.

Jacqualyn Fouse

Yes, it is already running, Christina. It’s – we just have the official ceremony on the 31st, so –

Christina McGlone – Deutsche Bank

Okay, thank you.

Alberto Weisser

Thank you.

Operator

And David Driscoll has our next question.

David Driscoll – Citi Investment Research

Great. Thanks for taking the follow-up. Jackie, can you give us a little bit of guidance here on the fourth quarter tax rate? I think you said you maintained the guidance but just given what’s happening with the real and the third quarter tax rate, I haven’t had a chance or enough time here to do the math, but it just seems conceptionally to me that the fourth quarter tax rate ought to be something similar to what the third quarter was?

Jacqualyn Fouse

No, in fact the – now, let me come back and just start from the beginning. So, if you go back to June and think about the guidance that we gave in July and then the June actual, at that time, given the mix of pre-tax profit that we had built in to the overall picture, that led to an effective tax rate that was on the higher end of the range, so closer to the 28%. That was the number for the six months and it was what we expected basically for the full year – for the full year to come out to the higher end of the range. What has changed a little bit has been – we are seeing for all the reasons that we have talked about throughout the call this morning with respect to the real weakness and the impact that that has on the translation of the profits and FIN 48 reserves and all that (inaudible). And some shift in the mix of income from our tax jurisdictions like Brazil partly because of the fertilizer and largely because of that I would say. So, we reevaluate that mix of income, we recalculate the numbers, and we get an estimate for the full year towards the lower end of the range, so around the 24%. And what happens is you make the adjustment to get to that year-to-date number in your nine months, obviously that has an impact on the quarter because you have to make the adjustment in the quarter to get that year-to-date number down and now it’s in line with what we would expect the full year to be based on the pre-tax income mix. And then the only reason I mentioned this $15 million of Hungarian tax credit is not because $15 million is such a huge number, but given the amount of income that we had in the third quarter that $15 million does pull just the third quarter rate down several points when in the grand scheme of things for the full year $15 million of the tax line wouldn’t mean very much, but it can in a quarter like the third quarter, so that’s why I mentioned it. Did that help?

David Driscoll – Citi Investment Research

That was very helpful. Can you also give us your updated number for interest expense for ’08?

Jacqualyn Fouse

Yes, we may need to follow-up with you on that because you have seen the nine months number and obviously with the debt levels coming down there is a positive impact of that although, as you know, spreads have widened and so when we look at our all-in borrowing cost we have to kind of net those two things out. But if you don’t mind, Mark and I coming back to you on that, we’ll do that.

David Driscoll – Citi Investment Research

I would really appreciate that. Last question, Alberto, what is your expectation for Brazilian soy acreage just percentage-wise? In the last couple of calls you commented on it, but maybe I can get you to make a comment right now given we are so close to the planting time.

Alberto Weisser

Yes, it’s – I am – we don’t have any very good precise visibility because this is all happening now, but more anecdotal estimate is that acreage will not expand but grain production, yes, because let’s say it differently, you will not have new acreage but you have some conversion of pasture in parts of the country closer to the coast. So, let’s say it differently, acreage is between 0% and 2%-3% expansion, less than we expected before.

David Driscoll – Citi Investment Research

Right. Thank you.

Alberto Weisser

And the comment about fertilizer being flat means that the implication is that perhaps there might be some issues on yield because some farmers might be being a little – skimping a little bit on it. So you have a small expansion of acreage but you might have a little bit less yield because some farmers are not going to use all the technology.

David Driscoll – Citi Investment Research

Thank you very much.

Alberto Weisser

You are welcome.

Operator

And our last question will come from Ken Zaslow.

Kenneth Zaslow – BMO Capital Markets

Just one follow-up, Alberto can you compare this environment going forward to a historical time and how you operated in that period of time?

Alberto Weisser

Well, that’s an interesting question. I would say it is a mixture of a couple of different moments. But let me say it in a little bit different way, we have had some moments before when there was temporary slowdown on demand and that gives us the confidence that it’s a pause, and so this will be picking up again the demand. So, we anecdotally see traveling around the world that the mood is much better than when you are in New York or when you are in Western Europe, so that is one experience. The fertilizer experience, we never had before. It is a very solid environment. And I think all of us underestimated that how the emerging markets – the developing countries, the poor countries had grown more and the diet has shifted to more consumption of protein, not only meat but also eggs and dairy and things like that. So, that’s different. I think what is similar is – and when completely different approach to the Brazilian farm environment, much more careful than in the beginning of ’05. And in one way or the other where I am feeling good is that the Company is well structured and we are facing an environment of a weaker real and that is positive. So, overall, I feel quite good, Ken, where we are, well positioned and some issues with the demand, short term, but overall the fundamentals are very, very strong. I don’t think we have had a similar year like this. Also, we have grown so much. When you think about it, we are probably seven to eight times bigger than we were when we went public and we are in many more countries and many more regions, so we didn’t have experience in that.

Kenneth Zaslow – BMO Capital Markets

Would you say over the last two to three years you guys have had the real strengthening on you and created at least $300 million to $400 million of incremental cost, is that a fair guesstimate?

Alberto Weisser

It is massive. You know it is massive when you think about it. I don’t even know any more – our guys are tired of so much cost cutting and adjustment. I would like to make – give you the analysis of one of the companies, Bunge Alimentos. We have now 5000 employees, we used to have 20,000, and we doubled our production over the last seven, eight years. That gives you an idea of what it means. So to have finally a relief from the currency it’s something important.

Kenneth Zaslow – BMO Capital Markets

Like $400 million, $500 million of importance [ph] or, what is massive?

Alberto Weisser

No, look, we don’t know exactly. Let’s not get too excited about it. Our budget is going to be based on a strong real because the fundamentals of the country are good, and the interest rate is high, so we have to be careful. But anything above 165 is perfect and I think today it was at 250 or something like that.

Kenneth Zaslow – BMO Capital Markets

Great, I appreciate it.

Alberto Weisser

Thank you, Ken.

Operator

And Mr. Haden, I will turn the conference back over to you for any closing comments.

Mark Haden

Sara, thank you very much and thank you everyone for joining us today.

Operator

Ladies and gentlemen that does conclude today’s conference. We thank you for your participation. Have a great rest of your day.

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Source: Bunge Limited Q3 2008 Earnings Call Transcript
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