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Bunge Limited (NYSE:BG)

Q1 2013 Earnings Call

April 25, 2013 10:00 am ET

Executives

Mark Haden

Alberto Weisser - Chairman and Chief Executive Officer

Andrew J. Burke - Chief Financial Officer and Global Operational Excellence Officer

Soren W. Schroder - Chief Executive Officer of Bunge North America

Analysts

Christine McCracken - Cleveland Research Company

Ann P. Duignan - JP Morgan Chase & Co, Research Division

Vincent Andrews - Morgan Stanley, Research Division

Tim J. Tiberio - Miller Tabak + Co., LLC, Research Division

Kenneth B. Zaslow - BMO Capital Markets U.S.

Brett Wong - Piper Jaffray Companies, Research Division

Giovana Araujo - Itaú Corretora de Valores S.A., Research Division

David Driscoll - Citigroup Inc, Research Division

Ryan Oksenhendler - BofA Merrill Lynch, Research Division

Diane Geissler - Credit Agricole Securities (NYSE:USA) Inc., Research Division

Robert Moskow - Crédit Suisse AG, Research Division

Operator

Good morning, and welcome to the first quarter 2013 Bunge Earnings Conference Call. My name is Brandon, and I'll be the operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn it over to Mr. Mark Haden. Mark, you may begin.

Mark Haden

Great. Thank you, Brandon, and thank you, everyone, for joining us this morning. Welcome to Bunge Limited's First Quarter 2013 Earnings Conference Call.

Before we get started, I want to inform you that we have prepared a slide presentation to accompany our discussion. It can be found in the Investors section of our website at bunge.com under Investor Presentations.

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

I'd like to direct you to Slide 2 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 conditions.

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 are Alberto Weisser, Bunge's Chairman and Chief Executive Officer; Drew Burke, Bunge's Chief Financial Officer; and Soren Schroder, who will become Bunge's CEO on June 1. I'll now turn the call over to Alberto.

Alberto Weisser

Good morning, everyone. It was a solid first quarter. I'm especially pleased by the way Sugar & Bioenergy performed. It shows we are on the right track. Agribusiness results were good. Our team performed very well, managing risk in a volatile market environment characterized by tight global supplies and challenging Brazilian logistics. And Food & Ingredients continued its strong performance from the second half of last year.

Looking ahead, I remain confident about 2013 and beyond. Agribusiness markets are transitioning from one of tightness to more comfortable supplies. Customer inventory pipelines are lean and in need of restocking so demand should remain strong. Farmers in South America responded with a record production and farmers in the Northern Hemisphere are expected to respond similarly.

The logistics congestion in Brazil was improving, but delays will continue to persist until the U.S. harvest later this year. We see positive signs in Sugar & Bioenergy as the weather in the center-south of Brazil has been ideal for cane development, and early readings of ATR, the sugar content in the cane, are on track to return to more normal levels. We also expect Food & Ingredients' results to continue to improve throughout the year.

Now I will turn over the call to Drew, who will provide greater detail on the quarter and outlook. Later, also, Soren will participate with us on the Q&A.

Andrew J. Burke

Thank you, Alberto. Let's turn to Page 3 in the earnings highlights. Total segment EBIT in the quarter was $323 million and included a $63 million gain from the sale of certain legal claims in Brazil. Adjusted for this claim, total segment EBIT was $260 million versus $200 million in the prior year. Our Agribusiness EBIT was $175 million versus $197 million in the prior year. Despite the reduction in volumes caused by low crop availability due to the prior year's droughts, our volumes increased 3%. This growth primarily reflects strong origination volumes in Brazil and higher utilization of our Pacific Northwest terminal. Soybean processing results were above prior year in all regions. Sunseed processing results were below prior year due to weather-related supply shortages and slow farmer selling. Our grain merchandising results were below prior year due to weather-related crop shortages in the Northern Hemisphere and Argentina. Our Brazilian grains business performed well.

Our Sugar & Bioenergy business produced an adjusted EBIT of $23 million versus a $33 million loss in the prior year based on a strong performance by our trading and merchandising business and a better-than-expected performance in our milling business.

Merchandising and trading profits were driven by a combination of strong volumes, higher margins and good risk management results. Trading and merchandising volumes were 1.9 million tons, twice the prior year levels.

During the first quarter, the milling business was in the inter-harvest period, which meant our mills did not start off until the last few weeks of the quarter and we sold product carried over from the prior year. The improvement in performance from the prior year results from lower inventory costs and higher ethanol prices.

Our Food & Ingredients business had another strong quarter with adjusted EBITDA of $59 million versus $48 million in the prior year. Both edible oils and milling performed above prior year. Edible oils exceeded prior year primarily as a result of higher margins and volumes in Brazil. Prior year volumes were lower than normal due to an SAP implementation.

Milling benefited from a stronger performance by our Brazilian business, which was also impacted by the SAP implementation in the prior year and the results of our weak milling business in Mexico.

Our continuing Fertilizer business had an adjusted EBIT of $3 million versus a $12 million loss in the prior year. Our Argentine business and Moroccan joint venture both showed improved performance.

Our net income available to common shareholders is $171 million versus $84 million in the prior year. Earnings per share from continuing operations on a fully diluted and adjusted basis is $1.15 per share versus $0.81 in the prior year.

Let's turn to Page 4 in the cash flow statement. Funds from operation in the quarter were $296 million, primarily reflecting net income plus depreciation of $121 million. Cash provided from operations was $103 million versus cash used by operations in the prior of $302 million. Capital expenditures of $224 million were in line with the prior year and plan. Our liquidity position remains strong. At March 31, we had approximately $3 billion of borrowing capacity available under committed credit lines.

Let's turn to Page 5 in the outlook. We remain confident about 2013. As a reminder, our results should be more oriented towards the second half of the year due to the seasonality of our businesses, particularly Sugar & Bioenergy. This is more the case this year as Agribusiness earnings in the Northern Hemisphere will be constrained by the crop available until harvest begins in the third quarter and commercialization in South America may be slower than historical trends.

In Agribusiness, we still have large crops to be handled and processed in South America, and we are expecting large crops in the Northern Hemisphere. If the crops meet expectations, supplies will move from tight to more balanced and near-term demand will increase as the pipelines are restocked.

South America will be the primary origin for exports through September. Additionally, our large Brazilian winter corn crop will provide opportunities for export business and support elevation margins. Oilseed processing margins continue to be good. With the new large -- with the large new crop, Northern Hemisphere volumes and margins should improve.

Oilseed processing margins in China are currently good due to tight supplies. We expect this to continue through the second quarter and potentially longer if supplies are being stay in balance. Near-term demand may be lower due to food safety concerns, but we expect the demand impact to be temporary. Oilseed processing margins are above prior year. Please turn to Page 6.

In Sugar & Bioenergy, positive signs are emerging. The new harvest has started and we expect to have enough cane to crush at full capacity. Importantly, both sugarcane yields per hectare and ATR, the sugar content in the cane, are higher than last year. This combination will result in a significant reduction on our unit costs.

Also, recent policy decisions in Brazil have created a more positive environment for ethanol. The government has moved to increase gasoline prices, which has a follow-on affect to ethanol pricing and demand. They have increased the blend rate of anhydrous ethanol into gasoline from 20% to 25% and earlier this week announced the reduction of taxes on ethanol, which would also be supportive to the industry. Accordingly, we see ethanol profitability improving.

Sugar prices have declined and are below our expectation for this year. If this persists, it may offset the improved economics of ethanol.

We still expect to be solidly profitable in our Sugar & Bioenergy business this year and we continue on track to achieve our targeted $8 to $10 EBIT per ton goal.

Food & Ingredients should continue to perform well. Our base businesses are solid. Our recent acquisitions are performing well and we have several new investments coming on stream later this year, including the Kandla refinery in India and the Decatur, Alabama refinery and packaging plant. We expect our continuing fertilizer operations to be profitable, and the sale of our Brazilian fertilizer business is on track with closing expected later this year.

I will now turn it over to the operator for your questions.

Question-and-Answer Session

Operator

[Operator Instructions] From Cleveland Research, we have Christine McCracken online.

Christine McCracken - Cleveland Research Company

Just on, in terms of demand, you did allude to the fact that there's been this recent disruption in China on the bird flu side, I believe. But have you at all looked at the downturn in the hog industry? And what looks to be a rather sizable liquidation in that herd? And as it relates to soy mill demand, aren't you at all concerned that, that demand growth will flow for longer than the short term?

Soren W. Schroder

Yes, this is Soren. Let me try and tackle that one. There's no doubt that short term, there is a negative impact on demand in China. A lot of it also simply coming from the fact that pipelines are so thin. But we believe that as we get through the next 2 or 3 months, all that will rebuild and certainly, the second half of the year, we'll be back to the growth rates in protein demand in China that we've enjoyed so far. So for the year, we don't really see it as a big flag.

Christine McCracken - Cleveland Research Company

Okay. And then just in terms of the color around the -- sorry, the ethanol, the changes in the ethanol tax rate and the increase in the blend, is there any way to quantify what that could mean in terms of incremental pricing opportunities and better returns on the sugar side?

Alberto Weisser

It's too early, Christine, because the devil is in the details, so we are still trying to digest because it's a tax reduction that is partially among the millers, partially among the distributors. There's a credit also to the millers and producers so we need a little bit of more time. But it's clearly a positive sign of more support from the government in direction that they realized the profitability of ethanol needs to be higher for millers to invest. So we feel good because we have single-mindedly focused on reducing our unit costs, and you can start seeing the results. But for the industry as a whole, for the whole country, more is needed.

Operator

From JPMorgan, we have Ann Duignan online.

Ann P. Duignan - JP Morgan Chase & Co, Research Division

Can you talk a little bit about the costs in Q2 from the delayed startup of the mills in Brazil? Can you quantify that in any way so that we can sort of get our models right?

Andrew J. Burke

That number is not small, but it's not that significant. What I think we would say is, we do expect to be profitable for the first half of the year. If it's typically the case, we probably will have a small loss in quarter 2 and maybe a little bit bigger than normal because the shifting in course. But the way I think of it is we'd be break-even to positive for the first half of the year.

Ann P. Duignan - JP Morgan Chase & Co, Research Division

Okay, that's helpful. And then on a more strategic note, Soren, can you talk a little bit about your role as CEO? Would you anticipate a review of this -- the portfolio and where you want to take this business for the next 5, 10 years once you take over as CEO?

Soren W. Schroder

You know what, at the moment, my focus is really on the transition, which is going very well and I'm super excited to continue to grow Bunge in the path that we already have established. But we review our portfolio on an ongoing basis and so we will be -- we'll continue to do that. But at this point, I can't really comment on anything more than I'm excited to continue the path of Bunge.

Operator

From Morgan Stanley, we have Vincent Andrews online.

Vincent Andrews - Morgan Stanley, Research Division

Can you just help us sort of think sequentially from 1Q to 2Q? A lot of moving parts, clearly. You just discussed sort of where sugar was. But do you think Agribusiness is going to be about flat or do you think it'll be up at all sequentially?

Alberto Weisser

I think, Vincent, that the quarter-to-quarter is very different in our business, as you know, because you move through -- as you move through the harvest cycles, each quarter performs differently. So I don't think looking at it sequentially is the best approach. From a historical perspective, I think what we're trying to say is the earnings -- some of the earnings opportunity that are normal in a quarter or 2 might appear later in the year and there's a little bit of weakness in the Northern Hemisphere crops. As you know, we don't give specific guidance so I don't want to put a number around it. But that's how I would think about it broadly.

Vincent Andrews - Morgan Stanley, Research Division

Okay, and just as a follow-up for Soren, do you have any particular views around use of capital whether it's CapEx or dividend or share repurchases that you can share with us at this point?

Soren W. Schroder

All of those options are open to us, and we review them on a regular basis. We have many opportunities that meet our hurdle rates to continue to grow our basic core business. And so that's clearly something that we're focused on and our CapEx policy, I think it's been exposed or explained clearly in the past. That's not changing. But all the options that you mentioned are available to us. Very importantly also, that maintaining our credit rating is absolutely essential. So that is part of the -- part of the consideration as well.

Operator

From Miller Tabak, we have Tim Tiberio online.

Tim J. Tiberio - Miller Tabak + Co., LLC, Research Division

When we assess, I guess, all the puts and takes in the timing issues in the Agribusiness, Drew, do you still feel that this is an environment in 2013 where you can still earn your cost of capital or even better in this environment?

Alberto Weisser

Yes, no question about it.

Andrew J. Burke

It certainly is that type of environment. And as you know, exactly how the euro play out depends a lot on what the Northern Hemisphere crops are. But as the year lines up right now, we see -- clearly see the potential to earn our cost of capital.

Tim J. Tiberio - Miller Tabak + Co., LLC, Research Division

Okay, and as a follow-up question on the biodiesel side, obviously, we have the mandate being increased year-over-year. But we also have very tight ethanol RIN credits from what I understand. From what you're seeing in that market right now, do you see the potential for us to maybe go a little bit higher than that mandate and provide some demand on the soy oil side in the second half that we're not currently seeing in Q1?

Soren W. Schroder

Yes, this is Soren. I'll take that one. I think we feel that we will most likely exceed the mandated level of biodiesel production this year. Margins are there and the RINs are clearly needed. So in all likelihood, that will continue to mean a drawdown of soybean oil stocks in North America, in the U.S. in particular, which we're experiencing. So a tight oil balance in the U.S. is likely to be the result of all this as the year progresses, certainly until September.

Operator

From Bank of Montréal, we have Ken Zaslow online.

Kenneth B. Zaslow - BMO Capital Markets U.S.

Soren, you have $750 million coming to you some time in the fall. What do you expect to do with that?

Soren W. Schroder

We will make that decision when we get there, Ken. The options I just outlined, I would say that making sure that our balance sheet stays very strong and in line with our credit rating, current credit rating, is absolutely a priority. So that probably would be the first place we look.

Kenneth B. Zaslow - BMO Capital Markets U.S.

Well can you talk about things that you won't do with it, maybe? Like, will you put any extra assets towards sugar or anything like that? Or can we think that you might be thinking about giving it back to shareholders? Or can you just frame it a little bit for us?

Soren W. Schroder

As I said, the priority really is to make sure that we stay within our ratios, balance sheet ratios, so that we maintain the strong credit rating that we have and everything else will be considered and decided when we get closer to it. So I don't want to exclude anything at this point other than maintaining that first point. That's the priority.

Kenneth B. Zaslow - BMO Capital Markets U.S.

Then my second question, in South America, can you talk about the logistic challenges and how they're easing or not easing over the next couple of months or if we've seen any change in that over the last couple of months? And then also, the crush margin outlook in both Brazil and Argentina would be helpful.

Alberto Weisser

Okay. Maybe we start with the crush margins first. Q1, we had good margins, good crush margins, in soya in Brazil in particular, also in the U.S. but in Brazil in particular. And Q2 should be fair for both Argentina and Brazil. So second quarter, we should see fair margins in both South American countries. As far as the logistics are concerned, the first quarter clearly has been a big challenge for the industry as a whole. It has also been for us, but we've navigated well and our results in Brazil show it. We came out of the first quarter looking good in both our grain origination and export activities. And part of the reason for that really is that we control more of the infrastructure maybe than the market as a whole, be that the overflow buffer storage we have in the interior, the control of the trans-shipment points, which is what we connect from truck to rail. The fact that we rely more on rail trans-shipments to the ports than the industry as a whole, roughly 20% more is used by us in terms of rail and truck. And that we have a very good global planning process. We don't put vessels in that we can't load. And that means that we also avoid not only the congestion at the origin, but make sure that we supply our destination crush, and China was a good story for us in Q1.

Andrew J. Burke

Plus the terminals.

Alberto Weisser

So the terminals, yes, we have the 8 terminals and so forth. We control our destiny to a larger extent than the industry, probably in Brazil, and I think it's reflected in our results. Q2, the challenge continues. So it's not over. I would say it's going to take us well into probably June, maybe even July before we get rid of the backlog in Brazil both in the interior and in the -- in line-ups at the terminals. But I think we feel good about our ability to navigate through that as we did in the first quarter.

Operator

From Piper Jaffray, we have Brett Wong online.

Brett Wong - Piper Jaffray Companies, Research Division

My question actually just got asked, but I'm just wondering if do you see any impact on margins in your Agribusiness from the logistical issues down in the second quarter?

Alberto Weisser

Well clearly there, the industry experienced higher cost of transportation as a whole and we did as well. The margin structure, however, compensated for that. In Q2, it is possible that there will be a slight shift of income from Q2 into Q3 as we execute through the programs, but I don't think it will be dramatic. I think we feel comfortable about our ability to execute the current book in Brazil through Q2. The amount of new or fresh farmer selling is a little bit difficult to judge at the moment with lower prices and then all these logistics headaches, farmers are not as active as they have been and that could be a bit of a flag. But in terms of execution, we feel good about where we are.

Operator

From Itaú BBA, we have Giovana Araujo online.

Giovana Araujo - Itaú Corretora de Valores S.A., Research Division

Going back to the logistics in Brazil, we heard from industry that the total logistics losses in Brazil to be recognized by the trading companies will slightly to amount close to BRL 2 billion, which implies a reading that trading companies will pay the bill in the first moment. Do you agree with that? If yes, how do you recognize these losses? As you sell or at once?

Andrew J. Burke

You clearly saw with our results, Giovanna, that we did not recognize these losses. So the higher costs because we were able to recover along the chain. So -- but I do not have a view on what the loss are for the industry. This number probably means the higher cost of freight. So -- but at the end, this is being borne by, mainly, the farmers with lower prices. So the results speak for themselves in our case.

Giovana Araujo - Itaú Corretora de Valores S.A., Research Division

Okay. My last question is about crushing margins in Brazil. We are a little bit concerned about the fiscal sin [ph] tax exemption on food passing its products on crushing margins in Brazil. Is that a concern to you? How these affect your crushing margins?

Andrew J. Burke

Are you referring to the new [indiscernible] law that was recently issued?

Giovana Araujo - Itaú Corretora de Valores S.A., Research Division

Exactly.

Andrew J. Burke

As you know, that law is still provisional and there are a number of amendments being proposed. So with the impact would be on us, we'll be highly dependent on those final amendments as it works its way through the Congress and we're continuing to evaluate it. Based on what we've seen so far, if we look at our overall margin structure throughout all our businesses in Brazil, we don't see a major impact.

Alberto Weisser

Because they're going to be also offsetting measures.

Operator

From Citi Research, we have Dave Driscoll online.

David Driscoll - Citigroup Inc, Research Division

Alberto, I joined the call just slightly late. Is this call your final call or will you also join us on the -- on next quarter's call?

Alberto Weisser

If you're nice, I join you. But officially, the next call is at Soren. He's the CEO as of June 1.

David Driscoll - Citigroup Inc, Research Division

I understand. Well I certainly want to wish you the best and it's been an absolute pleasure -- and a pleasure to have worked with you all these years. So -- but we do wish to be nice because we think we've got good things here. And so hopefully, we get to say our goodbyes again. But what I'd like to ask about is, risk management and certainly in the fourth quarter, there was just tremendous, tremendous discussion about risk management in kind of what happened. But now you're coming to the first quarter here and things look markedly better and then perhaps the outlook on the year is quite good just given the global tightness in grain supplies and given the difficulties that customers have geographically to source adequate products for the times that they needed. So could you spend some time and talk about risk management in terms of how you navigated through the quarter? And then what I really care about is your opinion on risk management activities and what their capabilities can and should be for the full year.

Alberto Weisser

Dave, we are very proud about our risk management, our framework, our team. I think we have done very well. Many people forgot that last year, we had the best year ever in Agribusiness. So when you look at it as a whole year, overall, we got it right. So the fourth quarter, we didn't get it perfectly right, but overall, the year was fine. And when you look at the first quarter, that is the continuum of a positive trend. So I feel very good about it, but let me ask Soren what his -- your take here.

Soren W. Schroder

I feel very good about it too, Alberto. Now, I mean, I think the bottom line is that the process and the approach to risk management this quarter is no different than it was last quarter or has been for a while. It's a strong process. It's a good approach and it's the same really solid team that's driving these results. As for the quarter, I mean, it was a transition quarter, David, from clearly super tight, high prices to now what looks like it's something different. And we obviously navigated that transition pretty well. Too early to call the year, as it is typically this time of year, but the outlook is good.

Operator

From Bank of America, we have Ryan Oksenhendler online.

Ryan Oksenhendler - BofA Merrill Lynch, Research Division

I just wanted to follow up, I guess, on Agribusiness and digging a little bit more detail. I guess, for the full year outlook, it is, I know you talked about it on the last quarter conference call that you expect this year to be a record year and I know that there's some timing shifts going on. But is your outlook lower for Agribusiness for the full year than it was 3 months ago because of the timing shifts?

Andrew J. Burke

I would say, Ryan, first, we don't give guidance, so I can't give you a specific answer. But the timing shifts wouldn't change our outlook. The potential is still there for a very good year. And a lot of it really depends on the pace of farmer selling in South America to see if they come in to any -- how much competition they do get, give the Northern Hemisphere when the Northern Hemisphere comes into play, and the size of the Northern Hemisphere crops and our ability to process and move those. But if you look at the situation, you do have a lower price environment anticipated but with much larger crops, and that should allow us to perform well. But again, we have a long way to go to know how the year plays out and particularly, how big the North American crop actually is.

Ryan Oksenhendler - BofA Merrill Lynch, Research Division

Because I guess, I thought like the whole key to this year was that North America would be the sole supplier in the first quarter and then you had really good -- South America really the only supplier in the second and third quarter, and you wouldn't have much of a tail, I guess, that South American crop to North American crop and so I guess, so the fourth quarter should really be a North American story and margin there should be pretty good. But if you're going to have this overlap now, I guess, why are you so confident in the back half of the year where you actually could have some competition between North America and South America?

Alberto Weisser

Yes, that is a potential headwind. One of the things we'll watch is to see how that plays out and how delayed the commercialization of the South American crop really is. The other thing that is happening is supply chains are very thin to the destination markets so there'll be some stock refilling. But for all those variables, that's why we hesitate to give specific guidance because to come down at this point, to tell you the size of the North American harvest when it starts, how long the South American tail is, and when those supply chains get filled, is a lot of variables that are put together. And that's why I said the potential is there for a very good year. We feel good about our year, but we need to see how well these variables play out as we move through the year.

Operator

From CLSA, we have Diane Geissler online.

Diane Geissler - Credit Agricole Securities (USA) Inc., Research Division

Hey, I wanted to ask you about the livestock industry in China. It just seems that they had a particularly tough first quarter between the dead pigs and the river floating into Shanghai and then all the problems [indiscernible] had with its supply chain, the chicken feed issue. Are you seeing an acceleration of commercialization of that -- of those industries in China? I know Tyson's been trying to build out some vertical integration in its operations, but I'm just -- what are you seeing from the feed side from China? What are your expectations for the full year?

Alberto Weisser

Well, as I said earlier, we do see a slowdown now and it will stick with us probably for another couple of months but certainly, the second half of the year, we expect a strong pull from China in protein, primarily soybeans, obviously. But there's no doubt that it's having a negative impact as we speak. But going back, looking at previous periods where similar things happened, it's always been remarkable how quickly things have rebuilt. And I believe that will be the same thing this time.

Diane Geissler - Credit Agricole Securities (USA) Inc., Research Division

Well, I guess my question is sort of like the larger issue of what they are doing with their industry in terms of trying to be -- in terms of food safety and trying to be more -- and have a more professionalized feed ration? Is that something that you're noticing in particular? I understand bird flu and the demand issue in the near term, but...

Alberto Weisser

Oh, we see it very, very much. There's a dramatic change in what we call more commercial operations. So it used to be more of these backyard type of operations especially in the hog industry. This is dramatically changing that's why we are also investing in feed mills to attend to this additional market and that's why you also see this very high mill demand. It's 9% worse versus the meat consumption is increasing only at 3%. So there's quite a way to go as all these operations become more commercial. So these kind of outbreaks only make the trend even stronger. So these are, I think long -- mid-long-term are very positive trends continued to being -- for our industry.

Soren W. Schroder

I would agree with that.

Diane Geissler - Credit Agricole Securities (USA) Inc., Research Division

Okay, and then, I think you said that you felt like you were better positioned vis-à-vis the logistics. I guess "logjam" is the best word to use kind of coming out of Brazil. What are you doing in the next 1 to 3 years to improve your positioning there in terms of -- are you continuing to build out your grain storage capabilities? I mean, where do you -- when you look at your portfolio of assets in Brazil, in particular, where do you think you're a little bit weaker than you want to be, just in -- I'm just trying to get my head around kind of, do you think you need more port facilities, do you think you need more transportation assets, where do you see spending money on that in the future?

Alberto Weisser

Well we will have another new port coming into play at the end of this year, ready for -- in 2014 harvest in the North of Brazil, the northern corridor, not in the Amazon, but the northern corridor, and supplied partly by truck, partly by barges. It is the frontier of Brazil. And we are investing, continuing to invest in those growth regions in the right areas. The other part that we continue to invest in is really the transformation from the farm to the port and that means investing in trans-shipment facilities even increasing our reliance on rail, which is clearly the most efficient way of getting product from the interior to the ports. We've got long-term contracts. We'll continue to build on those. And overall, just focusing on really turning the equipment fast and with predictability. So Bunge will continue to invest in infrastructure in Brazil in a meaningful way and just keep optimizing our existing operations. Don't forget we already have 8 ports and running those as efficiently as possible is already a big thing.

Diane Geissler - Credit Agricole Securities (USA) Inc., Research Division

Okay, and I apologize, I missed the first part of your call. Did you gave out a CapEx number for this year?

Andrew J. Burke

No, we didn't, Diane. But I believe the guidance we've given is at the beginning of the year was $1.2 billion.

Operator

From Credit Suisse, we have Robert Moskow online.

Robert Moskow - Crédit Suisse AG, Research Division

I had a question about Argentina. I think you said in your prepared remarks that farmers weren't selling in Argentina and I wanted to know how long you think that will last. And then secondly, given cargo's results weren't so great. Would you argue that you had a competitive advantage in Brazil because of your logistics and your strong asset platform there in terms of getting beans out?

Alberto Weisser

I think in Argentina, we're starting to see some more farmer selling now as it moves more into the crop, and so that has picked up. But for a long -- for last few years, the Argentine farmer is a reluctant and slower seller, but eventually, that crop moves and we expect the same this year. But the pace has picked up somewhat on that. We think we have a first-class logistic system in Brazil. We think we're best in class, but we don't want to get into a detailed comparison of Cargill or any of the other competitors in particular.

Operator

From Cleveland Research, we have Christine McCracken online.

Christine McCracken - Cleveland Research Company

I just have one quick follow-up. On your move to anhydrous and shifting that mix from hydrous, I was wondering if you could update us on kind of where you are, if those -- if that transition has kind of maxed out? And then in terms of your cogen capacity, when that's expected to come online?

Alberto Weisser

Anhydrous, all anhydrous production is 60% up versus last year and we will be producing everything we can. And cogen, if I'm not mistaken, we said it's 350 gigawatt hour the production of this year, also up 100 gigawatt hour versus last year. So that's on track to continue growing.

Operator

And we have time for one final question. From Bank of America, we have Ryan Oksenhendler online.

Ryan Oksenhendler - BofA Merrill Lynch, Research Division

I guess, Drew, just going back to your comments in regards to your earlier answer. You'd asked -- I think you said you had the potential to hit your cost of capital this year. Was that just for Agribusiness or was that for the company in whole? And what is your cost of capital?

Andrew J. Burke

That would've been for the company as a whole and our cost of capital is about 7%.

Operator

Mr. Haden, I'll turn it back to you for any closing remarks.

Mark Haden

All right, great. Thank you, everyone, for joining us for this call. Talk to you next quarter.

Operator

And this concludes today's conference. Thank you for joining. You may now disconnect.

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