By Chesney Hearst, Senior Contributing Reporter

RIO DE JANEIRO, BRAZIL – On Thursday, October 24th, the chief executive for agribusiness giant Bunge Soren Schroder announced plans to explore other options, including a possible sale, for the agriculture and food company’s currently unprofitable sugar milling business in Brazil, a move that analysts believe does not bode well for the country’s sugar business.

Sugar Mills Souring in Brazil, Rio de Janeiro, Brazil News
A sugarcane field in São Paulo state, photo by Elza Fiúza/ABr.

Schroder made the statement following the company’s 2013 third quarter results release which revealed earnings of US$14.7 billion, a decrease from the US$16.5 billion recorded during the same period in 2012.

The numbers represented a net loss of US$137 million in the third quarter compared to this time last year when the company saw a profit of US$289 million.

“Bunge’s overall success has to be defined by consistent value creation for shareholders,” Schroder said. “Given the challenges facing the Brazilian industry, we have commenced a comprehensive process to explore all alternatives to optimize the value of this business.”

This news comes five months after Schroder took over as CEO of the 195-year-old company and almost six years after Bunge initally entered the Brazilian sugar industry.

Four years ago Bunge, headquartered in White Plains, New York state, reportedly spent US$1.5 billion on five sugar mills located in the state of São Paulo. At that time, the mills were considered key assets for future ethanol production from sugar in what was thought to be a blossoming biofuel industry. For the third quarter Bunge’s sugar and bioenergy division reported a loss of US$19 million.

Sugar Mills Souring in Brazil, Rio de Janeiro, Brazil News
Due to recent low sugarcane yields, at least forty smaller sugar mills have already closed or have been consolidated into businesses, photo by Marcello Casal Jr/ABr.

Speaking about the possible sale of Bunge’s Brazilian sugar mills, Cesar Maria Borges, director of sugar and ethanol analyst at JOB Economia told Reuters that “this is a bad signal for the sector.”

“The expectation of Bunge when it entered the productive side was that there was money to be made. The problem, even though sugar prices are low, is on the ethanol side, which is fifty percent of the cane business.”

The sector has also recently experienced poor cane yields. “Last year’s average ATR [cane sugar concentration] was near historic lows and this year it is expected to be below that level,” stated Bunge financial director Drew Burke.

Bunge is one of four major companies that control the movement of most international agricultural goods. Joined by Archer Daniels Midland, Cargill Inc and the Louis Dreyfus Corp. the group of four is commonly known as the “ABCD”. So far this year, Bunge’s shares have gained only thirteen percent lagging far behind the almost 46 percent gains experienced by Archer Daniels Midland.

Schroder explained Bunge’s difficult time, saying that “in sugar and bioenergy, our global trading and merchandising team is performing well and building a solid business. Our Brazilian milling operations, however, continued to face suboptimal weather and low global sugar prices, as well as the structural headwinds of domestic cost inflation and capped ethanol prices.”

“These conditions make it difficult for the sector to generate consistent profit and appropriate returns. As a result, we have reduced our segment outlook for the fourth quarter and full year.”

Read more (in Portuguese).

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