Did Bunge pick the wrong time for its Brazilian agribusiness investment?

Bunge Limited (BG, quote), one of the world’s largest and most geographically-diversified agribusiness companies, missed first quarter expectations by more than 40%.

Image courtesy Bunge

Sugar Landing plant in Brazil

Earnings fell 53.6% from the same quarter a year earlier. Shares are down more than 12.5% since the release, underperforming the S&P 500 and the PowerShares DB Agriculture Fund (DBA, quote).

The loss came mostly on weak fertilizer pricing, but thanks to droughts in Brazil, management also had to lower guidance in the first quarter for its sugar processing business.

Despite the weakness, the agribusiness company seems to be doubling down in the country with another $584 million investment. This will increase investment in the country to over three billion through 2016.

Bunge is already a major player in the integrated production of sugar and ethanol in Brazil, and may be moving into palm oil production as well.

Output in the Brazilian agricultural sector contracted 7.3% from the previous quarter due to a drought in some parts and floods elsewhere in the country. Exports of sugar have fallen dramatically and some fear that Brazil may need to import soybeans for the first time in more than a decade.

The good news is that weather-related problems should prove temporary, auguring a rebound in the remaining quarters of the year. The bad news is that the rest of the Brazilian economy has yet to respond to government stimulus. Companies operating in the country will also be exposed to an increasingly risky policy environment.

Bunge sells grains and fertilizers to growers, then processes and sells oil products to consumers. Sugar and bio-energy account for approximately 10% of sales. Agricultural commodities are 66% and food oils account for about 15%.

The agribusiness company is well positioned to take advantage of the growing demand for food, especially in the emerging world. The shares sell for 11.2 times trailing earnings and pay a 1.8% dividend yield. Expectations for full year earnings are for an increase of 12.8% to $6.52 per share.

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