Bunge sells stake in Iowa ethanol plant

Like a well-intentioned New Year’s Resolution, Bunge is trying to shed some extra weight and focusing on its core. Bunge North America sold its Series B membership units to Southwest Iowa Renewable Energy, LLC effective December 31, 2019, thus ending Bunge’s 13-year ownership interest in SIRE. But why?

As we know all too well, the U.S. ethanol industry has struggled with the Trump administration’s expanded use of small refinery waivers and according to Reuters, already 13 ethanol plants have shut down since November 2018 with others reducing production at least temporarily. But hey, Trump visited this ethanol plant last summer, so didn’t that mean something?

As part of the Bunge/SIRE transaction, the two Series B directors appointed by Bunge, Andrés Martín and Brett Caplice, resigned from the SIRE board. In addition, the two companies revised commercial agreements.

SIRE accessed its existing credit facility to fund the unit purchase transaction.  In addition to the stock repurchase, SIRE will assume responsibility for originating corn and selling dried distillers grains produced by the plant.  Under a revised agreement, Bunge will continue to purchase all of the ethanol produced by SIRE. SIRE will also continue to lease rail cars from Bunge under existing lease agreements.

SIRE is located on 275 acres in Council Bluffs, Iowa, operating an ethanol plant that is permitted to produce 140 million gallons per year. SIRE began producing ethanol in February, 2009 and sells its ethanol, distillers grains, corn syrup, and corn oil in the continental United States, Mexico and the Pacific Rim.

Reaction from the stakeholders

Karol King, SIRE’s Chairman, stated, “Since we first partnered in 2006 and in the following years, through construction and ethanol industry challenges, Bunge has been an invaluable partner for SIRE.  In particular, SIRE benefitted throughout the years from commercial agreements for corn origination and products and in having two Bunge board members, who provided international agribusiness insight to our business.”  Mr. King continued, “SIRE is very pleased today to be in the position to go forward as an entity wholly-owned by our farmer and community members, with Bunge’s ongoing support for our ethanol marketing.”

“As Bunge focuses our resources on our core businesses, selling our shares in SIRE, while maintaining a relationship, is an attractive opportunity,” said Andrés Martín, North America country manager for Bunge. “Bunge is proud to have been a partner in building and operating this successful ethanol plant and we look forward to continuing to work with the SIRE team.”

Mike Jerke, SIRE’s CEO stated, “While conditions in the ethanol industry are difficult, with Bunge’s capital support and strategic advice over the years, SIRE is and will continue to be a strong participant in the renewable energy industry and low-carbon economy.  We look forward to continuing to work with Bunge on a daily basis in managing our ethanol sales and rail car fleet.”

Going once, going twice, sold!

Just weeks ago, Bunge Limited signed an agreement to sell its margarine and mayonnaise assets in Brazil to Seara Alimentos S.A. “This transaction further streamlines our operations in Brazil around our core capabilities, while providing good value for a solid business.  It also represents another incremental step in executing a key priority of optimizing our overall portfolio,” said Greg Heckman, Bunge’s Chief Executive Officer.

In October, Bunge sold a majority of its stake in Beyond Meat. “Since the lockup ended, Bunge has significantly decreased its position and will update the status of its investment when it reports its fourth quarter results,” Bunge said in an emailed response to Bloomberg.

Bloomberg reported that Beyond Meat’s sell-off followed a frenzied rally that drove the stock up as much as 840% back in July, helping White Plains, New York-based Bunge post a $125 million windfall in the second quarter. In the three months ended Sept. 30, Beyond Meat shares retreated and Bunge booked a $10 million loss on its holding. Bunge’s investment arm held 979,556 shares, or a 1.63% stake, before Beyond Meat’s IPO. In July, the firm took advantage of an early secondary offering — which allowed it to sell shares months before the lockup expired — and sold 72,709 shares at $160, filings show.”

As for their latest third quarter results as reported back in October 2019, Bunge had about $1.7 billion of charges related to portfolio initiatives, primarily the formation of the joint venture for the Brazilian Sugar & Bioenergy business which we’ll talk about more in a minute. They told investors in their earnings call that their agribusiness managed challenging markets well and benefited from approximately $25 million of net mark-to-market gains, which included $95 million of new gains on forward soy crush margin contraction. Food & Ingredients performed well, driven by strength in Edible Oils and progress continues on streamlining global business structure.

Greg Heckman, Bunge’s Chief Executive Officer, commented, “We navigated uncertain and deteriorating market conditions well.  While we expect headwinds to continue, we are making progress on our key priorities. We have improved our operational execution, as well as our discipline around risk management. Our decision to combine our global and North American headquarters in St. Louis is an important step in the work underway to streamline our global business structure.  We will continue to focus on the business drivers within our control as we execute our mission of delivering results and driving increased returns to shareholders.”

Check out their soy crush margins, grains updates, sugarcane milling results, and more at their Q3 earnings report here.

What the future holds

Based on the current agribusiness environment, which has become more challenging, Bunge now expects a decline in earnings versus 2018, according to their latest earnings report. This outlook excludes notable items, the favorable impact of Bunge Ventures’ investment in Beyond Meat and higher results in Sugar & Bioenergy. Additionally, the Company expects the following for 2019: A tax rate in the range of 20% to 24% excluding notable items; net interest expense in the range of $290 to $300 million; capital expenditures in the range of $520 to $540 million, of which approximately $115 million is related to sugarcane milling; and depreciation, depletion and amortization of approximately $550 million.

Bunge is also moving its headquarters from New York to St. Louis, Missouri. The Company is in the early planning stages of the transition to the new global headquarters, which is expected to be completed by the end of the second quarter 2020.

“While St. Louis is already an important hub for Bunge and our current North American operations, the city is also home to a number of food, agriculture, animal health and plant science organizations and customers,” said Gregory A. Heckman, Bunge’s CEO.  “Moving the global headquarters to a location where Bunge has a major business presence is a big step forward in shifting the Company’s operating model to align around a more efficient, streamlined global business structure. We are grateful to have called White Plains home for many years, and now look forward to the new growth and development opportunities which our expanded St. Louis presence will provide.”

BP and Bunge 50:50 Brazilian Joint Venture

As reported in The Digest just a month ago in December, BP and Bunge announced that they have completed the formation of BP Bunge Bioenergia, the Brazilian bioenergy joint venture that combines their Brazilian bioenergy and sugarcane ethanol businesses. BP Bunge Bioenergia will have 11 biofuels sites in Brazil. With 32 million metric tonnes of combined crushing capacity per year, the joint venture will have the flexibility to produce a mix of ethanol and sugar. It will also generate renewable electricity – fuelled by waste biomass from the sugar cane – through its cogeneration facilities to power all its sites and sell surplus electricity to the Brazilian power grid.

On completion, BP will pay Bunge $75 million, subject to customary closing adjustments, and the joint venture will assume $700 million of non-recourse debt associated with Bunge’s assets.

BP Bunge Bioenergia is now the second largest operator by effective crushing capacity in the Brazilian bioethanol market. BP’s interest in the new venture will grow its existing biofuels business by more than 50%. More on the details about the 50:50 joint venture with BP here.

Bottom Line

Trim the fat. Cut the carbs. Shed the extra pounds. Sounds like Bunge is doing just that to start 2020 off as a slimmer, trimmer machine. While we don’t know for sure how much of an impact Trump’s policies and the small refinery waivers had to do with the Iowa decision, we do know that Bunge is focusing on its core businesses to navigate the challenges ahead.