Lehman Brothers Initiation

EQUITY RESEARCH
August 13, 2008
Bunge Limited (BG - US$ 90.85) 3-Underweight

Initiation of Coverage
Finding Shelter?
United States of America Consumer Agribusiness Processors

Christopher M. Bledsoe 1.212.526.7862 cbledsoe@lehman.com LBI, New York
Investment Conclusion
We have initiated coverage of Bunge Limited (BG)
EPS (US$) (FY Dec)

2007
Actual 1Q 0.05A 2Q 1.35A 3Q 2.72A 4Q 2.25A Year 6.45A P/E Old 2.10A N/A N/A N/A N/A
with a 3-Underweight rating, based on our near-tointermediate term macro view and a relative vantage across the grain and protein processors within our universe of agribusiness stocks. Our $97 price target is predicated on a multiple of 14.5x our mid-cycle EPS estimate of $6.69 -- a 35% premium to BGs historical mid-cycle multiple of 10.8x to primarily account for a number of potential points of insulation (geographic and endproduct diversification) that could help sustain BGs earnings at levels markedly above what wed consider "normalized." That said, against very difficult YoY comparisons (particularly in fertilizer) and with BG trading more than a full standard deviation above its historical mid-cycle P/E multiple, we do anticipate increased investor focus on macro headwinds, including risks to animal feed demand (particularly in North America) and potential demand destruction in other end markets.
2008
New St. Est. 2.10A N/A 4.73A N/A 3.46E N/A 2.71E N/A 13.00E N/A 7.0 Old N/A N/A N/A N/A N/A
2009
% Change
2009 36% -10% -2% -7% %
New St. Est. 2008 2.86E N/A 4100% 4.26E N/A 250% 3.38E N/A 27% 2.52E N/A 20% 13.01E N/A 102% 7.0
Market Data
Market Cap (Mil.) Dividend Yield 52 Week Range 11047 0.77 135.00 - 80.73
Financial Summary
Revenue TTM (Mil.) 49035.0
Stock Overview
BUNGE LIMITED - 8/ 1 3/ 20 08
Reuters ADR
BG BG
Bloomberg
1 2 7 .5
1 1 2 .5
Stock Rating
New: 3-Underweight Old: 0-Not Rated
Target Price
New: Old: US$ 97.00 N/A
9 7 .5
8 2 .5 Volum e 10M Sep Oct Nov Dec J an Feb Mar Ap r May J un J ul Aug
Sector View: 1-Positive
Source: LehmanLive
Please also see our industry note (230 pages) published concurrent with this company-specific note.
Lehman Brothers does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Customers of Lehman Brothers in the United States can receive independent, third-party research on the company or companies covered in this report, at no cost to them, where such research is available. Customers can access this independent research at www.lehmanlive.com or can call 1-800-2LEHMAN to request a copy of this research. Investors should consider this report as only a single factor in making their investment decision.
PLEASE SEE ANALYST(S) CERTIFICATION(S) ON PAGE 53 AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 54
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EQUITY RESEARCH
Bunge Limited (BG - $90.85; 3-Underweight)

We have and initiated a coverage of Bunge across Limited the (BG) with and a 3-
Underweight rating, based on our near-to-intermediate term macro view relative vantage grain protein Our $97 processors within our universe of agribusiness stocks.
price target is predicated on a multiple of 14.5x our mid-cycle EPS estimate of $6.69 -- a 35% premium to BGs historical midcycle multiple of 10.8x to primarily account for a number of potential markedly against deviation points above very and above of insulation wed BG (geographic and end-product That full said, in do diversification) that could help sustain BGs earnings at levels what with its consider YoY trading normalized. more than P/E a difficult comparisons mid-cycle (particularly multiple, we
fertilizer)
standard
historical
anticipate increased investor focus on macro headwinds, including risks to animal feed demand (particularly in North America) and potential demand destruction in other end markets. In our view, the longer-term dynamics for global, well-capitalized grain firmly processors, supported particularly by a robust BG, appear quite favorable and and crop worldwide consumption
production outlook.
Furthermore, the recent pullback in mid-cycle
valuation and possible above-Consensus EPS results in the balance of fiscal 2008 may lend some support to the shares at current levels. Importantly, however, in the near-to-intermediate term, the
combination of possible demand destruction in animal feed and potentially other end markets for grains points to a slowing rate of EPS growth in FY09, in our view. While it remains early days Specifically, for evidence of broad-based demand destruction, we have seen clear indications of this within certain end-markets. cutbacks by protein producers in North America appear to be taking hold more firmly, easing volume growth and pricing power of grainderived animal feed products (corn and soybean meal) a shift that we believe could gain momentum in coming quarters. And, with our analysis suggesting that other important growth drivers ought to be closely monitored, like dietary shifts in the developing world, we believe BG could well be on tap for a slowing rate of EPS growth into 2009. Closer in, we view BG as somewhat better insulated than other processors from potential US crop risk a function of its product and geographic diversification. Despite more recently improved growing conditions in the Midwest, we expect the combination of 1) shallow roots attributable to excessive early season moisture and
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EQUITY RESEARCH
2)
heightened
risk
of
frost-related
crop
damage
(and
of
sub-
optimal photosynthesis) owing to a protracted harvest season, to keep investors focused intently on crop of vertically integrated protein development in coming to maintain their months, particularly as such concerns could increase the resolve processors production cutbacks. Should we see a return of supply-driven
inflationary pressures through the US harvest season, we estimate that upwards of 36% of BGs oilseed processing asset network could be directly exposed to adverse but South utilization wed also to America, implications expect see a BGs benefit and other by possible demand destruction,
geographies,
particularly
filling this void.
In addition, higher grain and oilseed prices
irrespective of whether its supply-push or demand-pull driven should prove a positive for fertilizer application rates. Still, while BG may prove fairly well insulated in such a scenario and wed note a reversal in grain prices would likely translate to an easing of working capital constraints, a significant portion of an improving the cash outlook long-term local already demand appears outlook of to be tagged suggest rock for such and spending behind capacity expansion projects in coming periods. While in robust of would spending is warranted, including the planned $2 billion investment expansion production phosphate intermediate fertilizers, it nevertheless limits near-term cash returned to shareholders. Although our analysis does suggest that capacity expansion has historically proven a positive for those investors with a 5+ year investment horizon, it would also appear as though agricultural investments are an industry wide phenomenon at their highest level in more than 15 years. step-function increases in capacity that Taken together, we reverse recent believe this ultimately raises the near-term risk, in our view, of could upward momentum in profit spreads, further inhibiting investor sentiment on grain processors shares. With respect to BGs recently announced all-stock acquisition of CPO (expected completion in calendar 4Q), we believe firmly in the long-term strategic rationale and see revenue/cost synergy opportunities well beyond managements initial guidance of $100$120 million. Among grain processors, Bunges business model -already one of the best capitalized and largest scale is on a pro forma basis even better capitalized, larger scale, and more diversified by both geography (on the margin) and end-market If we (fertilizer, oilseeds and corn/sweeteners, among others).
were to assume no change in CPOs fiscal 2009 P&L versus 2008, plus factor $120 million of cost synergies, wed look for the acquisition to be net neutral to BGs EPS by the end of fiscal
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EQUITY RESEARCH
2009.
Still, the combination of the acquisitions price tag (a
premium multiple, at least at the time, at a peak cycle?) and possible corn co-product risk in 2009 appear to have tempered near-term investor enthusiasm for the combination, in our view, as these headwinds, if they materialize, could push back the accretion/dilution timetable absent incremental cost synergies. All in, we believe company-specific points of insulation (there are several) could limit significant downside in BGs shares, but a premium mid-cycle earnings multiple versus ADM likely reduces investor tolerance for even marginal evidence that such offsets may be inadequate against potential macro headwinds. In the following pages, we take a closer look at key points of insulation provided by BGs product lines and geographies, and therefore risks to our rating. Risks to Our Rating: Key risks to our rating include continued strength in global demand trends for BG's food, feed and fertilizer products, including a reversal in BRL strength which would enhance the competitive position of BG's Brazilian-based agricultural products. More specifically Capacity could remain tight: Oilseed crushing and traditional corn milling capacity has tightened significantly in the past decade following several rounds of sector consolidation and robust global growth trends. To the extent that this consolidation has indeed created a more rational environment and grain/oilseed processors are therefore willing to ignore expansionary could prove expectations. Protein production cuts could prove too shallow or short-lived to impact of grain 2x-8x demand: in Given feed-to-liveweight farm animals, we conversion view BGs ratios commercial market more signals, then above-trend implied profitability by current sustainable than
profitability as intricately connected to demand for soybean meal and corn feed. If protein processors fail to take the necessary measures to return profitability to normalized levels via supply contractions, then demand for BGs feed products could lend to better than anticipated volume and profitability in the companys grain and oilseed processing businesses. Recent sell-off may cause the shares to rally on evidence of sustainability of above-average performances: On a year-to-date basis, BGs shares have underperformed the S&P 500 by 10 percentage points (-21% vs. -11%, respectively), pushing the
4
EQUITY RESEARCH
shares to 1.3x book value, or one full standard deviation below its historical 1.8x book value multiple and not far from its prior trough of 1.1x. To the extent that current valuation levels already discount potential FY09 headwinds and concerns about sustainability beyond FY08, we believe evidence to the contrary could cause the shares to rally. Savvy hedging strategies may insulate profitability: BG
regularly uses its in-house crop expertise and global presence to take proprietary trading positions, which can insulate the company impacted positions from its is headwinds business limited that units. and could may otherwise Transparency create an have upside adversely these earnings around
surprise in any given quarter. Global share market and dislocations in response to protectionist global or
nationalist government policies could continue to create market arbitrage opportunities: BGs asset infrastructure, coupled with the assets of its JV partners, have been well positioned to capitalize on market dislocations stemming from border closures and protectionist measures in certain regions of the world. While generally these have been viewed as non-recurring dislocations, we believe another step function increase in agricultural commodity inflation could set off another round of policy changes, with additional favorable implications for BGs agricultural services functions. The US government may opt to alter its subsidization of cornbased ethanol: We believe the highly inflationary environment of the past twelve months has increased political pressure on US government officials to repeal or reduce various supports provided to the corn-based ethanol industry. Should such changes include a reduction in the sugar-based ethanol import tariff, wed expect BGs expanding sugar presence to directly benefit from increased demand, while its sizable Brazilian agricultural asset infrastructure could see a further indirect benefit from improved utilization levels. sweeteners businesses could improve Likewise, pro forma such a scenario for its acquisition of CPO, we believe profitability in corn under (hedges aside), as more corn becomes available (presumably at a less expensive cost) for non-energy related uses, while cornbased sweeteners a substitute for sugar -become more competitive globally in response to likely inflationary sugar trends.
EQUITY RESEARCH
Fertilizer
profitability
may
remain
above-average
for
the
foreseeable future:
In our view, aside from BGs geographic
fertilizer advantage, which we estimate translates to a $40-$60 per metric ton transportation advantage in catering locally to expanding acreage and application trends in South America, we also believe BGs vertical integration in phosphate-based fertilizers could help bolster the sustainability of abovetrend profitability in this business given the high cost and lengthy duration of Greenfield expansion projects in phosphatebased fertilizers.
BG Potential 09 Macro Headwinds, but Better Insulated than Some

In our view, against a backdrop of tight industry capacity, BGs diversified model has positioned the company quite favorably as a beneficiary model also of the BG robust to global consumption environment which we experienced in the past several years. exposes certain However, this diversified risks,
macro-level
anticipate will draw increased investor focus in coming quarters. Looking into 2009, we believe record prices for grains,
exacerbated by supply-side shocks like flooding in the Midwest and a late start to the growing season, raise the need for passthrough pricing and therefore create risk of broad-based demand destruction for certain end-products, particularly feed consumption and emerging market food consumption. By extension,
although increased raw material costs tend to create market share opportunities for BG relative to less well-capitalized players, it raises working capital requirements and deteriorates certain credit measures (something that CPOs clean balance may help BG address). negatively Nevertheless, we expect demand destruction in grains to tilt the bias of earnings growth in 2009, placing
disproportionate reliance on better insulated geographies (e.g. S. America, an admittedly big business for BG) and business lines (e.g. trading and/or fertilizer, also a big business for BG) to maintain the pace of earnings growth on a consolidated basis. All in, incrementally less bullish investor sentiment has weighed on the shares of grain processors. Still, we feel that BGs business lines and geographic exposure relative to peers offer more specific points of insulation (greater percent of revenue from S. America and fertilizer) even against what could prove to be meaningful headwinds: potentially less robust corn co-product margins in 2009 (assuming approval of the CPO acquisition), demand destruction taking hold in North American animal feed, reduced processing utilization levels in the US related to a likely lower tonnage harvest, and worldwide industry capacity expansion.
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EQUITY RESEARCH
Figure 1: BG - Agricultural Merchandising, Processing, Food Products and Fertilizer Asset Footprint
Facilities Merchandising Processing Owned Leased Total Owned Leased Total Company Total (excluding CPO) North America NA NA NA NA NA NA NA NA NA NA NA NA Rest of World Worldwide NA NA 307 NA NA 157 Agribusiness* Processing (Oilseed, Wheat and Corn) North America NA NA NA NA Rest of World Worldwide NA NA Fertilizer** Mining & Blending North America Rest of World Worldwide Capacity Merchandising Processing Metric Tons (M) Met Tons (M) / Yr 7.055 14.178 21.563 21.9 91.8 113.6
NA NA 302
NA NA NA
NA NA NA
NA NA 56
NA NA 17.335
NA NA 46.2
NA NA NA
NA NA NA
NA 4 4
NA NA NA
NA NA NA
NA NA 44
NA NA 3.347
NA NA 55.7
Food Products Segment Total (Disclosed) North America NA NA Rest of World Worldwide NA
BG's Additional Lines of Business *Agribusiness
NA NA NA
NA NA 1
NA NA NA
NA NA NA
NA NA 57
NA NA 0.881
NA NA 11.7
Sugarcane mill and ethanol plant (Brazil) and Sugar Trading platform Minority investor in biodiesel producer Diester Industries Int'l (Europe) Financing intermediary for farmers (Brazil) **Fertilizer Controlling stake in Fosfertil (Catalao, Tapira and Salitre Brazil mines, w/ 1m, 300k, and 500k MT of capacity/yr) Other: Corn Products Int'l (acquisition pending approval)
Source: Company filings and Lehman Brothers estimates
Diversified Model Exposes BG to Potential NT Macro Headwinds

Below, we discuss several key watch points which we believe will draw increased investor focus in coming quarters, with possible implications for Bunge. These include: 1) inflation-induced demand destruction in key markets, 2) a lower tonnage US harvest as a result of early summer flooding / crop rotation with utilization implications for North American processing assets (less tonnage produced), and 3) step-function increases in industry capacity in grain/oilseed processing as well as fertilizer production.
EQUITY RESEARCH
Figure 2: Key Macro Events/Themes in Agriculture and Potential Implications for 2009
Major Theme Crop Rotation Where N. America When Implications Spring '08 Corn to Soybeans Harvest Less Tonnage in Fall '08 Explanation/Significance crop rotation necessary for health of soil soybeans yield fewer bushels per acre than corn +/- in '09 for Line of Business* + + + + N.A. Ag Services N.A. Corn Processing N.A. Soybean Processing N.A. Corn Processing N.A. Soybean Processing N.A. Fertilizer S.A. Corn Processing S.A. Soybean Processing Potential P&L Impact Lower Volume Lower Volume Higher Volume Lower Margin Higher Margin Easy YoY Comparison Higher Volume, Margin Lower Volume, Margin
Prices: Higher Corn / Lower Soybean
less corn supply, more soybean supply
Less Fertilizer Used in Spring '08 Implications for S. America:
soybeans require less fertilizer than corn reliance on SA corn increases reliance on SA soybeans decrease too wet for equipment to work effectively less corn supply, more soybean supply corn growing season starts earlier than soybean soybeans yield fewer bushels per acre than corn excess rain / limited availability of rust resistant seeds less corn supply, less soybean supply in US
Excess Precipitation Late Start to Plantings
N. America
C'1H08
Limited Farmer Access to Fields Volume: Rotation from Corn to Soybean
+ + +
N.A. Corn Processing N.A. Soybean Processing N.A. Ag Services N.A. Soybean Processing N.A. Corn Processing N.A. Soybean Processing All S.A. Processing N.A. Ag Services N.A. Fertilizer All S.A. Business Lines
Lower Volume Higher Volume Lower Volume Lower Volume Lower Margin Lower Margin Higher Volume, Higher Margin Difficult YoY Comparison Difficult YoY Comparison Higher Volume, Higher Margin
Volume: Soybean Plantings Also Limited Prices: Higher Corn / Higher Soybean
Demand shift to South America Floods after Emergence
Reliance on SA soybeans/corn increase
High Water Levels Create Risk to Floodwalls barge capacity reduced (increases '08 barge rates) Reapplication of Fertilizer (Modest) Demand shift to South America fertilizer may have been reapplied where feasible Reliance on SA soybeans/corn increase
Market Dislocations
Global
C'1H08
Margin & Market Share Opportunities heightened concern around distribution/access Distribution Re-Routing / Availability Concerns pricing power on long-haul utilization, availability concerns Abitrage Opportunities local market info provides edge on global commod trading inability of grain-procurers to remain profitable feed conversion ratio = 2x-8x depending on protein higher elasticities than developed world food consumption makes US commodities less competitive globally makes S. American commodities more attractive makes S. American commodities more attractive
Ag Services Trading
Difficult YoY Comparison Difficult YoY Comparison
Inflation Grain Inflation
Global**
C'2H08-09 Demand Destruction Protein Production Cuts Watchpoint Risk to Emerging Market Food Consumption
+ + -
All Global Business Lines All Global Business Lines All N.A. Business Lines All S.A. Business Lines All S.A. Business Lines All
Lower Volume, Lower Margin Lower Volume, Lower Margin Lower Volume, Lower Margin Higher Volume, Higher Margin Higher Volume, Higher Margin Lower Margin
General Inflation
N. America
Watchpoint Fed Tightening Cycle (USD Strengthening)
S. America Capacity Expansion Global** Watchpoint Processor Competition
asset expansion = step-function capacity increases
*Assumes no hedges in place **Global, but N. America is major global protein supplier
Source: Lehman Brothers analysis
Risk #1: Potential inflation-induced demand destruction in key markets: In our view, markets with traditionally high elasticity In particular, we view North American feed levels remain the most at risk in todays elevated commodity price environment. consumption and developing market food consumption as most at risk, posing potential adverse implications for BG. North American Feed Consumption: BG CEO Alberto Weisser commented ADM followed suit
at an industry conference in June that the company was beginning to see weaker feed demand in North America. August 5th. with similar commentary on its fiscal 4Q08 conference call on Animal feed accounts for more than 40% of total corn By our math, the If we were to and soybean consumption in the US, clearly an important end-market for grain processors serving the US market. companys Agribusiness unit accounts for roughly 45% of normalized EBIT and houses its oilseed processing assets. assume that two-thirds of BGs oilseed processing capacity is allocated to protein meal (and the majority of this to animal feed), we estimate that roughly 30% of company-wide profitability is potentially exposed to animal feed elasticity headwinds globally. However, only 36% of the companys oilseed processing
8
EQUITY RESEARCH
capacity is located in North America, implying total exposure of 11% of company-wide profitability.
Figure 3: BG Estimated Exposure to North American Feed Operations

Figure: BG - % of EBIT (Normalized)
Processi ng, 45%
Figure: BG - Processing Capacity

N. America Feed, 24%
Figure: BG - NA Feed Exposure

N. America Feed, 11%
Other, 55%
All Other, 76%
All Other, 89%
Source: Lehman Brothers estimates
To put this into context, simply looking at the level of protein production cuts currently implied by forward looking indicators (egg sets, sow slaughter, and cattle on feed), and taking into account weight reductions, total we calculate that the US protein billion industry is on tap to reduce total meat production by nearly -6%, effectively reducing meat production from 67.2 pounds of retail weight to 63.3 billion pounds i.e. a -3.9 billion pound reduction, led by pork (-2.1 billion pounds), then chicken (-938 million pounds) and then beef (-813 million pounds), assuming current forward looking indicators hold (see analysis below). If we were to apply the -6% protein production cut to this 11%, we estimate that it would create a utilization gap of less than 1% of BGs total company-wide processing capacity smaller than the estimated 1.5% gap for ADM. geographies, in our opinion. Still, the global nature of these commodities can present implications for non-US
EQUITY RESEARCH
Figure 4: Corn & Soybean Demand Destruction Related to Animal Feed (Tonnage and Acreage Implications)
Chicken Beef Pork Combined US Consumption (M lbs.) 31,594 18,071 17,556 67,221 % of Consumption 47% 27% 26% 100% Production Cut Basis -3.0% eggs set (-4.2%), weight (+1.2%) -4.5% cattle on feed (-4.1%), weight (-0.4%) -12.4% sow slaughter (+11.9%), weight (-0.5%) -5.9% weighted average Reduction in M Lbs. -938 -813 -2,183 -3,934
Chicken Beef Pork Combined
Reduction in M Lbs. -938 -813 -2,183 -3,934
Feed Conv. Ratio 2.7 12.9 4.6 5.9
Feed Mix Corn Soy 67% 33% 67% 33% 67% 33%
Implied Chg in Feed Demand Corn (M lbs.) Soy (M lbs.) Corn (M bu.) Soy (M bu.) -1,702 -838 -30 -14 -7,009 -3,452 -125 -58 -6,779 -3,339 -121 -56 -15,490 -7,629 -277 -127
% of Total US Production* (tonnage) Corn Soy Combined -0.2% -0.5% -0.3% -1.0% -2.2% -1.2% -0.9% -2.2% -1.1% -2.1% -4.9% -2.6%
Chicken Beef Pork Combined
Chg in Feed Demand (M bu) Corn Soy -30 -14 -125 -58 -121 -56 -277 -127
Bushels/Acre** Corn Soy 151 41 151 41 151 41 151 41
Acreage Reduction (M) Corn Soy Combined -0.20 -0.34 -0.54 -0.83 -1.40 -2.22 -0.80 -1.35 -2.15 -1.83 -3.09 -4.92
% of Total US Acreage Corn Soy Combined -0.2% -0.5% -0.3% -0.9% -2.2% -1.4% -0.9% -2.1% -1.4% -2.0% -4.9% -3.1%
*% of US Production based on 2007 production of: US Production (Million Bushels) Corn 13,074 Soybeans 2,585 Combined 15,659 **based on '07 avg yields ***% of US Acreage based on '07 Planted Area US Production (Million Bushels) Corn 93.6 63.6 Soybeans Combined 157.2
Given the time lag implied by the forward looking indicators used in this analysis, wed expect most of this reduction to come to fruition in 2009. As illustrated below, we have already begun to see cutbacks in herds and livestock put into motion even before the most recent rise in feed related to flooding in the Midwest, which in our view likely accelerated cutbacks. for crops. Taking into account factors Importantly, this feed-to-protein has implications not only for protein pricing, but also for demand like conversion ratios for commercial farm animals, the mix of feed represented by corn and soybeans, and average yields per acre, we estimate that the aforementioned -6% decline in protein production would, acreage in a vacuum, result in a -2.6% this decline decline is in total roughly corn/soybean tonnage consumed and a -3.1% decline in total US required. Interestingly, equivalent to the +3.2% increased acreage requirement between 2007 and 2008 necessary to satisfy ethanol mandates. supply/demand models suggests that this In a vacuum, our in acreage decrease
requirement would translate to a $0.35/bushel decrease in the cost of corn and roughly a $3/bushel decrease in the cost of soybean meal.
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EQUITY RESEARCH
Figure 5: Eggs Set - 10-Week Forward-Looking Chicken Supply Data

(YoY % Change)
6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% 02 Wk 30 03 Wk 30 04 Wk 30 05 Wk 30 06 Wk 30 07 Wk 30 08 Wk 30
Source: USDA National Agricultural Statistics Service
Figure 6: Boar & Sow Slaughter 9-mo Forward-Looking Pork Supply Data
(YoY % Change)
400 2008 2007 2006
350
300
250
200 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Figure 7: Cattle Place on Feed 6-mo Forward Looking Beef Supply Data
(1,000 head)
3,000 2,500 2,000 1,500 1,000 500 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2008 2007 2006
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EQUITY RESEARCH
Developing Market Food Consumption:
BG is more closely linked
today to food consumption in the developing world, especially much of Asia, than at any time in its history (see below).
Figure 8: BGs Global Asset Network and Businesses (2008 vs. 2001)
2001 2008
Source: Bunge Limited presentation (June 2008)
Given the more favorable environment for crop production in North America and South America relative to Asia (see rainfall levels in figure below and left) as well as Asias faster population growth and more robust per capita GDP trends (changing diets below and right), BG has capitalized on its extensive global reach to connect its processing assets (concentrated most heavily in the Americas) with this growing source of demand. Likewise, BG has made further inroads by bringing the asset base closer to the demand via Greenfield expansion, acquisition, and joint ventures.
Figure 9: Worldwide Rainfall

propor tion of w orldw ide precipitation
Figure 10: Global Dietary Shift

proportion of all people living on US $10-$20/ day of purchasing power parity
Copyright 2006 SASI Group (University of Sheffield) and Mark Newman (University of Michigan) Source: Worldmapper.org
Copyright 2006 SASI Group (University of Sheffield) and Mark Newman (University of Michigan) Source: Worldmapper.org
12
EQUITY RESEARCH
While
we
view
this
push
into
faster-growth
markets
as
significant long-term positive for BG, we nevertheless acknowledge that such exposure is not without risk, particularly given these markets historically high demand elasticity levels relative to consumption in the developed world. In developing markets, the combination of a dietary shift to more calories, and again more in we an meat-based more among detail the BRIC calories, later health and population growth has fueled demand for grains. sections), China) is believe As discussed previously in this report (see of Supplement per for capita and GDP in Appendix trends, and grain
particularly
countries watch
(Brazil,
Russia, investors
India
important
point
processing stocks.
On this score, we note that several BRIC
countries have already exceeded the duration of their historical economic expansionary period. And, in our view, although emerging markets still only make up a fraction of total demand relative to domestic consumption, the influence of per capita GDP trends and inflation is nevertheless magnified as a result of higher demand elasticity for food than in the United States. Whereas a 1% increase in general consumer inflation leads US consumers to cut back consumption of grains and meat by a mere 0.04% and 0.09%, respectively, consumption in BRIC countries is more than 5x as sensitive, according to a study by the USDAs Economic Research Service. Accordingly, applying historical grain and meat elasticity rates to current inflationary pressures in each of the four BRIC countries is equivalent to returning roughly 3.5% of total world corn and soybean production (or 10% of US production) back onto the market (see Figure: Protein Production Cuts Ease Grain Requirements in the pages below). BRIC countries and apply the In addition, if we were to elasticity rates, we
assume an average correction to per capita GDP trends of the four historical calculate that this would have the equivalent effect of returning 4.0% of the worlds total corn and soybean production (roughly 12% of US production) back onto the market (see figure below or Appendix for complete analysis).
13
EQUITY RESEARCH
Figure 11: Equivalent % of World Corn & Soybean Production Returned to the Market Assuming
1.2% 1.1% 1.0% 0.9% Historical Elasticity Response to Current Inflation Rate
1.8% 1.6% 1.4% 1.4% 1.2% 1.0% Hist. Elasticity Response to Avg Per Cap GDP Correction 1.7%
0.8%
0.6%
0.8%
0.4%
0.4% 0.3%
0.6% 0.4% 0.2%
0.5% 0.4%
0.2%
0.0% Brazil Russia India China
0.0% Brazil Russia India China
Source: USDA (Economic Research Service) and Lehman Brothers analysis
Risk #2: A sub-par US harvest: Several factors appear poised to deflate US crop production this year, with potential implications for BGs profitability through next year. These factors include crop rotation from corn to soybeans (a lower tonnage per bushel crop versus corn), a late start to the growing season (creating risk of frost and/or too little daylight for photosynthesis related to a late harvest), and severe Midwest flooding (some lost acreage). resilient continue While it would appear as though the crop has been quite to to early believe season that flooding it warrants cost and excess moisture, as there we are full watching, pressures
several important implications of a weak US harvest and associated supply-push inflation, including (without pass-through pricing power, particularly in ethanol), potential demand destruction, system wide working capital constraints, and impaired utilization levels. Naturally, those processors with proportionately fewer assets within the US are better insulated. As noted previously, we estimate that BGs processing capacity exposure in North America is roughly 36%, or half of ADMs 70%+ exposure. Supply-Push Inflation: Although price inflation is generally
positive for grain processors when it is demand-pull driven (see figure below), it can be considerably less so when the source of inflationary pressures is supply-side led. inflation of recent years, BG has In the demand-pull preserved its sufficiently
margin structure on the back of strong pricing power (demand for end-products) and higher utilization levels (spreading fixed costs over more units), which has allowed the company to offset higher raw material costs.
14
EQUITY RESEARCH
Figure 12: BGs Product-Line Exposure (small circles) to Demand-Pull Grain Inflation (large circle)
CORN & SOYBEAN GLOBAL DEMAND-DRIVEN PRICE CYCLE (PRODUCT IMPLICATIONS)
Strong Corn & Soybean Demand Bargaining power shifts upstream to growers and to processors of grains. Consumers of grain-derived end products (feed, ethanol, HFCS) compete for raw material, thereby driving grain prices higher. Global demand for grain-derived end products leads to high capacity utilization among processors and facilitates pass-through pricing, except where pricing is determined by unrelated cycles (protein, ethanol).
Beneficial Price Driver for Sweeteners (HFCS, Dextrose, Glucose, Maltose) Starches (Industrial, Food) Co-Product (Feed, Meal, Oil) Ag Services Soybean Oil Crushing: Meal Ag Services NPK Blends Margin Positive NPK Fertilizers Sweeteners Starches Co-Products Oil Meal Ag Services
Weak Corn & Soybean Demand Bargaining power shifts downstream to the consumers of grain-derived end products. (feed, ethanol, HFCS) easing competition for raw material, thereby driving grain prices lower. Weak global demand for grain-derived end products leads to low capacity utilization among processors and impairs pass-through pricing, except where pricing is determined by unrelated cycles (protein, ethanol).
Margin Positive Chicken Grow-Out Turkey Production Hog Production Feedlot Operations Ethanol Bio-Diesel Beneficial Cost Driver for Sweeteners (HFCS, Dextrose, Glucose, Maltose) Starch (Industrial, Food), Co-Product (Feed, Meal, Oil) Ethanol Ag Services Soybean Oil Crushing: Meal Bio-Diesel Ag Services Fertilizer: N/A Corn Milling:
Corn Milling:
Corn Milling:
Not a Direct Price Driver for Ethanol
Fertilizer:
Soybean Bio-Diesel Crushing: Fertilizer: N/A
Poultry & N/A Livestock
Poultry & Poultry & Livestock Producers Livestock Protein Processors Not A Direct Cost Driver for N/A
Adverse Cost Driver for Sweeteners (HFCS, Dextrose, Glucose, Maltose) Starch (Industrial, Food), Co-Product (Feed, Meal, Oil) Ethanol Ag Services Soybean Oil Crushing: Meal Bio-Diesel Ag Services Fertilizer: N/A Corn Milling:
Corn Milling:
Soybean N/A Crushing: Fertilizer: Margin Negative*** Chicken Grow-Out Turkey Production Hog Production Feedlot Operations Ethanol Bio-Diesel NPK Blends Margin Negative NPK Fertilizers Sweeteners Starches Co-Products Oil Meal Ag Services
Poultry & Chicken Grow-Out Livestock Turkey Production Hog Production Feedlot Operations Adverse Price Driver for Corn Sweeteners (HFCS, Dextrose, Glucose, Maltose) Milling: Starches (Industrial, Food) Co-Product (Feed, Meal, Oil) Ag Services Soybean Oil Crushing: Meal Ag Services Fertilizer: NPK Blends
Poultry & Non-Vertically Integrated Protein Livestock Processing Operations (Beef Packing, Pork Processing)
Poultry & Chicken Grow-Out Livestock Turkey Production Hog Production Feedlot Operations
Duration Influenced by: Economic Cycles (Food, Fuel & Industrial Product Demand), Protein Production (Feed Demand), Currency Trends, Gov't Policy
* Assumes no hedging and no forward contracting **Certain circumstances may cause results to vary ***Margin negative unless the product is the source of the inflationary pressure
In supply-push driven inflationary environments (see illustration below), bargaining power shifts upstream to surviving growers of grains, higher. as limited raw material availability drives grain processors to compete for supply, in turn driving grain prices Still, grain processors can recover some of this cost pressure, as their customers own concerns about the availability of grain-derived end-products may facilitate the ability to passthrough higher raw material prices. However, the consumption bias for grain-derived end-products tilts negatively in such a scenario given the potential for inflation-induced to create a less demand destruction, pricing ultimately threatening favorable
environment among processors competing for fewer contracts.
15
EQUITY RESEARCH
Figure 13: BGs Product-Line Exposure (small circles) to Supply-Push Grain Inflation (large circle)
CORN & SOYBEAN DOMESTIC SUPPLY-DRIVEN PRICE CYCLE (PRODUCT IMPLICATIONS)
Domestic Corn & Soybean Supply Shortage Domestic Corn & Soybean Supply Surplus Bargaining power shifts upstream to surviving growers of grains, as limited raw mat'l drives grain processors Bargaining power shifts downstream to processors of grains and consumers of grain-derived end products. and consumers of grain-derived end products to compete for supply, driving grain prices higher. End-product Wide availability of raw material eases competition for grains, driving grain prices lower. End-product demand demand remains unchanged but utilization suffers. Availability concerns may facilitate pass-through of prices to remains unchanged but utilization improves. Availability of grain-derived end products may force the passgrain-derived end-products, except for unrelated cycles (protein, ethanol). through of lower prices, except for unrelated cycles (protein, ethanol).
Beneficial Price Driver for Sweeteners (HFCS, Dextrose, Glucose, Maltose) Starches (Industrial, Food) Co-Product (Feed, Meal, Oil) Ag Services Soybean Oil Crushing: Meal Ag Services NPK Blends Margin Positive NPK Fertilizers** Margin Positive Ethanol Bio-Diesel Chicken Grow-Out Turkey Production Hog Production Feedlot Operations Sweeteners Starches Co-Products Oil Meal Ag Services Beneficial Cost Driver for Sweeteners (HFCS, Dextrose, Glucose, Maltose) Starch (Industrial, Food), Co-Product (Feed, Meal, Oil) Ethanol Ag Services (when corn price trend is demand driven) Soybean Oil Crushing: Meal Bio-Diesel Ag Services (when soy price trend is demand driven) Fertilizer: N/A Corn Milling:
Corn Milling:
Corn Milling:
Not a Direct Price Driver for Ethanol
Fertilizer:
Soybean Bio-Diesel Crushing: Fertilizer: N/A
Poultry & Poultry & Livestock Producers Livestock Protein Processors Margin Negative Ethanol Bio-Diesel Chicken Grow-Out Turkey Production Hog Production Feedlot Operations Sweeteners Starches Co-Products Oil Meal Ag Services Not A Direct Cost Driver for N/A Margin Negative NPK Fertilizers**
Adverse Cost Driver for Sweeteners (HFCS, Dextrose, Glucose, Maltose) Starch (Industrial, Food), Co-Product (Feed, Meal, Oil) Ethanol Ag Services Soybean Oil Crushing: Meal Bio-Diesel Ag Services Fertilizer: N/A Corn Milling:
Corn Milling:
Soybean N/A Crushing: Fertilizer: NPK Blends
Poultry & Chicken Grow-Out Livestock Turkey Production Hog Production Feedlot Operations Adverse Price Driver for Corn Sweeteners (HFCS, Dextrose, Glucose, Maltose) Milling: Starches (Industrial, Food) Co-Products (Feed, Meal, Oil) Ag Services (when corn price trend is demand driven) Soybean Oil Crushing: Meal Ag Services (when soy price trend is demand driven) Fertilizer: NPK Blends (when corn price trend is demand driven)
Poultry & Non-Vertically Integrated Protein Livestock Processing Operations (Beef Packing, Pork Processing) Poultry & N/A Livestock
Poultry & Chicken Grow-Out Livestock Turkey Production Hog Production Feedlot Operations
Duration Influenced by: Annual Domestic Crop Production (Acres Planted and Yield Per Acre) and Intra-Season International Production
* Assumes no hedging and no forward contracting **Certain circumstances may cause the converse
Altogether, while elements of demand-pull inflation appear likely to remain in place (and possibly for quite some time), the nearterm pull from certain end-markets, like protein processors, could be more tepid, thus creating a less favorable profit dynamic than had been in place for much of 2007 and 2008. In addition, we will continue to closely monitor crop development through the harvest season for any indication that US grain processing assets might also contend with supply-push elements that had not previously been in place. Processing Utilization Levels: Likewise, the full adverse effect on margins is often not realized until the following year, when the prior years fall harvest is consumed. though, the risk to asset utilization With less to harvest, levels suffers, either
because of reduced availability of supplies in affected regions or because of inflation-induced demand destruction more generally. As a result of lower utilization levels and marginally less pricing power (relative to the pricing power of their farm-level suppliers), margin preservation for grain processors becomes more difficult to achieve.
16
EQUITY RESEARCH
Utilization Levels for Origination Assets: levels for grain elevators, storage
Aside from utilization and processing In
facilities
plants, wed note that a poor harvest can create asset utilization headwinds for origination assets, like BGs grain elevators. our view, utilization levels on assets that handle US crops may suffer in 2009 against a difficult 2008 comparison, as the large 2007 corn-heavy crop, which came to harvest last fall and is currently being marketed, has also propped up demand for capacity in 2008. flooding soybeans. Risk #3: Industry-wide capacity expansion: capacity creates creates in a a industry vacuum, pricing threatens for power. profit expansion, industry In our view, tight Conversely, pricing margin capacity power and In order for these assets to repeat results seen in and from crop rotation to lower tonnage per acre 2008, they will have to overcome the reduced yields resulting from
possible
headwind
expansion.
Accordingly, we believe recent trends in capacity expansion may give some investors cause for concern. ADM: For its part, wed note that as of ADMs fiscal 2007 10-K filing last summer, it had intended to spend $3.0 billion on capacity expansion and other capital projects through fiscal 2011 (June 30 year end). But, as of June 2008, the company indicated that through March 2010 it expects to have already spent $2.6 billion of this total, with fiscal 2009 spending representing the potential peak. Specifically, ADM has indicated that it is expanding its South American barge fleet by 30%, adding 1,800 tank cars to its fleet of 21,000 railcars, and improving import/export capacities. C1Q10 It is constructing two new ethanol plants (C3Q09 and building a PHA biodegradable corn-based completion),
plastics plant (C2Q09 completion), expanding its cocoa processing capabilities (C3Q09 completion), adding a new propylene glycol plant (C3Q09 completion), and undertaking other capital projects as well. ADMs construction of two new dry corn milling plants will increase the companys annual ethanol production capacity by 550 million gallons to 1.7 billion gallons. BG: But, this trend is not unique to ADM. taking place throughout the industry. Similar initiatives are BG, for instance, is
increasing its canola crushing capacity by about 50% (to 1,400 metric tons per day) with the expansion of its Nipawin, Canada facility. Likewise, the company is expanding its access to fertilizer raw materials, including the Araxa mine expansion (late 2009) and Fosfertil Tapira and Catalao mines (early 2010), which coupled with other fertilizer expansion initiatives is expected to
17
EQUITY RESEARCH
provide BG with a 65% boost in phosphate rock production capacity by 2011. And, the company is expanding its Santa Juliana Sugarcane Mill in Mato Grasso, Brazil, from 1.6 million metric tons of cane milling capacity to 4 million metric tons. initiatives, namely the build-out of Several other major crushing/refining oilseed
facilities spanning four continents, are underway as well. Industry-Wide: By the numbers, large cap grain capital expenditures as a percent of the processors are years net
spending more on capacity expansion initiatives (as measured by prior property, plant and equipment asset base) than at any point in time in the last 15 years. increased its spending on As shown below, the industry has capital expenditures five-fold from
roughly 5% of the prior years Net PP&E in 2001 to more than 25% estimated in 2008 a clear indication, we believe, of more than just maintenance capex spending. during tripled the 1996 a to 2001 period of Also as illustrated below, we helped 2% in set 1999 the to stage 6% in for a believe the reduction in capex (as a % of prior years Net PP&E) subsequent recovery in grain processors Return on Assets, which from trough level 2007. Accordingly, the dramatic rise in capacity expansion in the last seven years warrants watching as it may pose a risk to industry returns.
Figure 14: Grain Processors Return on Assets vs. Capacity Expansion
Source: Company filings and Lehman Brothers analysis
Industry-wide capacity expansion initiatives are not limited to processing assets. Fertilizer capacity is expanding as well. For instance, in June 2008, Canpotex a consortium led by fertilizer producers Potash Corp, Mosaic, and Agrium and responsible for exporting all potash produced in the
18
Saskatchewan province of
EQUITY RESEARCH
Canada -- plans to begin two terminal projects that collectively will provide a two-fold increase (from 12 million tons to 23 million tons) in its available capacity. While terminal capacity itself is not a concern to fertilizer profitability, perhaps more important is the production intention of the consortium behind the projects. Canpotex CEO Steven Dechka indicated, "With Canpotex shareholders working to significantly increase production over the next several years, we have a responsibility to build on our longterm plans ability for an by to deliver this 2.7 essential million by nutrient to offshore of the potash at 3 cost markets. capacity efficiency fertilizer Not surprisingly then, in July Potash Corp. announced additional 2012, plants. and plug metric in our tonnes view, (with erode enabled and brownfield nature well expansion
Saskatchewan
Importantly, play could
existing fertilizer
infrastructure) make brownfield expansion an attractive option for producers, which very pricing power over time.
Figure 15: World Potash Projects vs. Demand Growth

based on committed projects including POT's Saskatchewan brownfield expansion Million Tonnes KCI, Cumulative Growth
16 14 12 10 8 6 4 2 0 2008 2009 2010 2011 2012
Figure 16: Brownfield vs. Greenfield Expansion Costs

Billion Dollars per Million Tonnes of Potash
$1.6 $1.4 $1.2 $1.0 $0.8 $0.6 $0.4 $0.2 $green brown $0.6 $1.4
POT's Saskatchewan Brownfield Committed Capacity Expansion Projects 4% Demand Growth (4.5% '08 projection)
Source: Potash Corp Brothers analysis
(June
08),
Fertecon,
and
Lehman
Source: Potash Corp filing (July 08) and Lehman Brothers analysis
While
the
theme
of
capacity
expansion
holds
true
across In our
fertilizers, we would note that BGs primary profit exposure (and vertical integration model) is to phosphate, not potash. view, the higher barriers to entry in phosphate and the duration of Greenfield expansion, coupled with an increased emphasis on South American production (the primary geography serviced by BGs fertilizer potential business) margin may better insulate with the company from pressures associated capacity expansion
initiatives in other fertilizers (see Supplement).
Nevertheless,
the companys operating margin has expanded from 2.8% in 2005 to a mid-teens level most recently (a long-term average of 10.5%). While it may be some time before we see 2.8% operating margins
19
EQUITY RESEARCH
again, we would not be surprised to see margins, over time, come off of current levels. Margin Implications: spending In is our view, given the strong long-term or not,
global demand outlook for grain-derived products, we believe the incremental warranted. But, warranted capacity expansion may threaten near-term industry pricing power and create a possible headwind for profit margin expansion (% margin and $ margin). firmly rooted in While capacity expansion appears to be global demand projections, wed robust
nevertheless note that the sheer size of the plants and the unit processing capacity necessary to create scale advantages lead to step-function increases in industry capacity rather than a perfectly smooth scaling up along the consumption curve. Cash Implications: Separate from the potentially adverse margin impact, construction of new capacity also limits cash returned to shareholders. processors are By our math, a as shown below, of large their cap free grain cash pouring larger percent
generation into capital expenditures than at any point since 1999. With a group average dividend yield of 1.3% (0.8% for BG) versus the S&P 500 dividend yield of 2.2%, as cash wed anticipate renewed management in focus, particularly and working capital to requirements shareholders.
eventually ease, on striking a better balance between investment long-term projects returned Likewise, with industry-wide capacity expansion at peak levels, a more conservative approach by management may now be warranted when evaluating projects. expected financial returns on capacity expansion
Figure 17: Grain Processor Capex % of OCF* vs. ROIC

100%
Figure 18: Capex vs. Prior Year PP&E (BG vs Peers)

18% 16% 14% 12%
Capex % of OCF (before Wkg Cap Changes)
ROIC
40% 35% 30% 25%
ADM
BG
CPO
34%
C ap ex % o f O C F (excl. w kg cap ch g )
90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
10% 8% 6% 4% 2% 0%
21% 20% 15% 10% 5% 0% 2004 9% 9%
23% 21% 17% 15% 12% 11% 13% 19% 20% 14%
RO A
13%
2005
2006
2007
2008
*Before changes in working capital Source: Company filings and Lehman Brothers analysis Source: Company filings and Lehman Brothers analysis
20
EQUITY RESEARCH
CPOs Co-Product Exposure a Potential 09 Headwind for BG

In our view, the same macro trends that allowed CPO to meet, and in some cases, handily exceed its five-year financial targets, which include low double digit EPS growth and an 8.5%-10%+ return on capital employed (ROCE) appear likely to remain intact for most of the balance we of 2008 the (albeit at a moderating pace). for In BGs addition, see long-term strategic rationale
proposed merger with CPO as quite firm.
That said, it appears to
us that much of the upside in CPOs results in 1H08 have been driven by co-product pricing, i.e. the companys policy to lock-in its corn requirements in North America, without capping securing pricing for many non-starch co-products, like corn oil, corn feed, and corn meal, which collectively make up between 20% and 30% of CPOs revenue. In our view, even with the recent pullback in the But, with grain markets, co-products may continue to provide YoY upside earnings potential through the balance of the year. inflation-induced demand destruction already taking hold in animal feed (11% of CPOs revenue, we estimate) as a result of protein producers cutbacks, and with possible additional volume risk more broadly, we have some concern that not only will CPOs corn milling businesses face a difficult YoY comparison to 2008 but that it will also face some margin headwinds in North America as BG integrates the business in 2009 (pending shareholder approval in what we expect to the October/November timeframe).
BG May Prove Better Insulated from 09 Macro Headwinds than Some Peers
As explained below, we see several reasons why BG may prove better insulated from Macro headwinds in 2009 than some of its peers, including: 1) implications of geographic diversification (particularly BGs strong South American presence), and 2) our expectation for continued strong profitability in BGs fertilizer business. Geographic Diversification: Among grain processors, BG enjoys one of the most geographically diverse asset networks (see figure). Heading into 2009, we believe the companys exposure to processing businesses outside of North America will better insulate it from several potential macro conditions, including a lower tonnage US harvest and a potential fed tightening cycle, which could prove risks for US-based processors.
21
EQUITY RESEARCH
Figure 19: BG Oilseed Processing Network by Region

South America, 37%
Asia, 3% Europe, 24%
North America, 36%
Source: Company filings
For starters, a weak US harvest increases the onus on other parts of the world to meet global consumption demands, most notably South America given its agricultural infrastructure and favorable growing climate. positioned With 37% of BGs oilseed processing capacity processor to benefit from this shift. located in South America, primarily Brazil, we view BG as the best oilseed Likewise, the companys proposed merger with CPO the #1 market share player in South American corn milling further insulates it, we believe, since CPOs US exposure ($1.0 billion in revenue in 2007) is balanced by its South America exposure ($925 million in revenue), where profit margins are already structurally higher. This is not to say that BG wont face an incrementally less favorable profit environment in its oilseed and/or corn milling (post-CPO) businesses. corn milling In fact, North America houses 36% of its But, such risks are reasonably well oilseed processing capacity and the US represents 30% of CPOs capacity). balanced, in our view, against businesses that could well benefit from a lower tonnage US harvest. Not merely in the near-term, but also over time we believe that South America for presents a more significant crop both expansion via yield opportunity agribusiness processors,
improvements and acreage expansion. production levels. raw material
Of course, land acquired for
crop production can often take 3+ years to bring up to adequate Thus, much of todays crop production growth For soybeans BGs primary some 65% above 2000 levels. acreage was was set in motion three years ago. 2005
Further acreage expansion opportunities exist and as shown below by the change in SLC Agricolas expansion plans, we believe the market is responding to expansionary price signals. Specifically, in April 2008 the company -- one of Brazils largest owners and operators of farmland had anticipated a mid-teens planted area expansion rate in each of the next several years (also reflecting second-crop opportunities).
22
Since then, this forecast has been
EQUITY RESEARCH
revised upward a full 10 percentage points, with the company now anticipating a CAGR in the mid-20% range through 2010. Agricola highlights greater efficiency (better While much yields and of this expansion is via acquisition of existing farmland, SLC increased second crops) as an important part of its value creation proposition.
Figure 20: SLC Agricola Planted Area Expansion Plan

As of 4/30/2008
Figure 21: SLC Agricola Planted Area Expansion Plan

As of 7/31/2008
Source: SLC Agricola
Source: SLC Agricola
As such, acreage is only part of the story.
Efficiency of the
land is another key component one that stands to benefit BG in two ways: 1) increased raw material for production, and 2) demand for fertilizer. Currently, Brazilian soybeans yield 2.85 tons per hectare or roughly -1% less productive than US farmers, though we are familiar with some land in Brazil garnering as much as 3.27 tons per hectare when optimized. average versus 3.64). optimized and Perhaps more interesting, US corn yields are 2.7x Brazilian corn yields (9.36 tons per acre on However, we are aware of some Brazilian before accounting for second-crop land garnering corn yields of closer to 9.7 tons per acre when thats opportunities (October to December planting window and a January to February window).
23
EQUITY RESEARCH
Figure 22: Corn Seed Trait Adoption in South America
Source: Monsanto
Figure 23: Oilseed Seed Trait Adoption in South America
24
EQUITY RESEARCH
Source: Monsanto
In addition, BGs non-US exposure (including Fertilizer, 35% of normalized EBIT, and roughly two-thirds of its oilseed processing capacity, an estimated 30% of normalized EBIT) also serves as a hedge against a possible reversal in the weak US Dollar particularly important should the Fed enter a rate tightening
cycle. Under such a scenario, we believe the competitiveness of commodities originating in the US may be at risk. In fact, while a stronger dollar may well alleviate domestic inflation pressures, it could have the opposite effect abroad, where US agricultural commodities absent a correction would become more expensive on a local currency basis. In our view, under such a scenario, the purchasing power of importing countries is reduced such that the aforementioned demand elasticities may become evident in volume trends. Alternatively, if agricultural commodity prices were to fully correct in response to potential interest rate tightening (see figure), we believe that too would have consequences for financial returns of domestic grain processors. Under such circumstances, those processors with proportionately fewer assets within the US are better insulated.
Figure 24: Commodity Prices versus US Dollar Trends

600 550 500 positive correlation CRB Index USD/EUR $0.90 $0.85 $0.80
CRB Index
USD/EUR
450 400 350 300
$0.75 $0.70 $0.65 $0.60 $0.55
negatve correlation
250 Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr05 05 05 05 06 06 06 06 07 07 07 07 08 08
Source: FactSet and Lehman Brothers analysis
Should
the
US
dollar
strengthen,
and
therefore
weaken
the
competitive position of US agricultural commodities globally, BGs South American operations, which account for 37% of its asset footprint and depend largely on the health of the Brazilian soybean farmer, may benefit. BG has indicated in the past that the health of the Brazilian soybean farmer may be in jeopardy as US
25
EQUITY RESEARCH
soybeans
approach
$11
per
bushel.
If
the
dollar
were
to
strengthen against the Brazilian Real, this $11 per bushel rate would translate to a higher dollar amount relative to the Real again assuming the negative correction in the underlying commodity price is not more severe than the inverse correction in the US dollar. Fertilizer: partial BG derives from US an estimated damage. 35% of While its the normalized companys To the
operating profit from fertilizer, which we believe provides it a offset crop fertilizer products are distributed most heavily in South America, its pricing is nevertheless tied to global fertilizer prices. the extent that early season US crop damage encouraged
reapplication of fertilizer (not entirely clear, at this stage) and/or accelerated development of farmland in South America, it may have buoyed prices, demand for fertilizer widening on a global for basis and of therefore thereby margins producers
fertilizers.
While this may create a headwind in 2009 versus
strong 2008 levels, we believe that US crop rotation back to corn (from soybeans) may lend support to high fertilizer prices, since corn is a more fertilizer-intensive crop. Also of significance, we estimate that BG enjoys a $40-$60 per metric ton transportation advantage versus much of the rest of the fertilizer market in South America, which is import-driven. As biofuel displacement of transportation fuel slows (because biofuel producers are forced to run idle given higher corn and soybean costs), BGs transportation advantage versus importers may widen further. Plus, BGs primary profit exposure in fertilizer is to phosphate, where the company is vertically integrated. capacity expansion initiatives in other We believe exposure In to phosphate may provide it some insulation from more aggressive fertilizer bases. fact, the required Greenfield expansion period for phosphate rock is 3-4 years and the cost of Greenfield expansion is $1.5 billion per million metric tons higher than both potash and nitrogen.
26
EQUITY RESEARCH
Figure 25: Fertilizer Greenfield Expansion (# of Years)

7 6 5 4 3 2 1 0 Potash Phosphate Nitrogen 3.5 3.0 6.0
Figure 26: Fertilizer Greenfield Expansion ($Bn/MMT)

$1.6 $1.4 $1.2 $1.0 $0.8 $0.6 $0.4 $0.2 $Phosphate Potash Nitrogen $1.0 $1.5 $1.4
Source: Potash Corp presentation (June 2008)
When the phosphate market first began to tighten in 2004, little new capacity may expansion tight had been the announced. In light of projections for continued solid demand for acreage expansion, this market remain high over near-to-intermediate of Greenfield term. in Likewise, the capital costs expansion
phosphate provide a barrier to entry.
As a result, we believe Still, as BGs own Plus, the trend-
phosphate margins may be better insulated. incentives for expansion are firmly in place.
capacity expansion initiatives in this market attest, the economic line growth in phosphate demand over the past five years has been below that of potash (3.8% versus 5.6% for potash). Although BG does sell fertilizer blends, it is not vertically integrated outside of phosphate.
Figure 27: World Potash Projects vs Demand Growth

based on committed projects including POT's Saskatchewan brownfield expansion Million Tonnes KCI, Cumulative Growth
16 14 12 10 8 6 4
Figure 28: New Phosphate Rock Capacity vs Demand

based on committed projects Million Tonnes Rock, Cumulative Growth
25
Committed Capacity Expansion Projects
POT's Saskatchewan Brownfield Committed Capacity Expansion Projects 4% Demand Growth (4.5% '08 projection)
20
3% Demand Growth (3% '08 projection)
15
10
5
2 0 2008 2009 2010 2011 2012
0 2008 2009 2010 2011 2012
LT Favorable Bias: Flexibility in Assets, Trading Platform and Balance Sheet

In addition to our expectation that BGs geographic exposure and business mix should provide some insulation against potential macro headwinds, our long-term bias on large cap grain processors
27
EQUITY RESEARCH
is decidedly more constructive than our near-to-intermediate term. For instance, while we anticipate inflation induced demand destruction on the margin in the near-to-intermediate term, we also expect any associated easing in prices will in short order draw any number of buyers competing for agricultural resources whether ethanol producers, protein processors, food manufacturers, or the like. This same dynamic should also allow for capacity And, beyond -and crop excesses associated with new construction to be absorbed in a more timely fashion than perhaps weve seen in the past. related to unusually high precipitation levels 2009, wed also expect the risks from a weak US harvest in 2008 rotation to soybeans to revert (alleviating potential utilization pressures on BGs North American assets). At its most basic level, the worlds need for food and renewable fuels is growing and only a handful of large, well capitalized agribusiness players are able to satisfy this demand. Although agricultural processing is arguably a commodity business, thriving (and sometimes merely surviving) in this business hinges on: 1) being among the most efficient, lowest cost producers, and 2) having the flexibility to quickly adapt to changing market conditions. In our view, to be the most efficient, lowest cost By the same producer requires scale, scale, and more scale.
token, to adapt to changing market conditions requires having the right asset footprint in the right place at the right time or, at a minimum, in the ability to to swing and assets (or the functionality tools, deep global thereof) response sophisticated forecasting
institutionalized information flow.
knowledge,
cross-organizational
Altogether, the barriers to entry in this industry are high, as the market is not particularly hospitable to those processors with a small asset footprint, less sophisticated trading/information systems, or limited access to capital. For this reason, we do not anticipate a significant threat from new entrants in traditional agribusiness processing segments, but rather believe the industry consolidation that has taken place prior to the most recent upcycle should keep todays well capitalized players in the drivers seat. Even in emerging agricultural businesses, like ethanol, we ultimately expect a round of consolidation to drive out those processors less able to operate with scale and flexibility in their assets. In addition, to BG enjoys a trading in the platform that allows it to
capture arbitrage opportunities as they arise and/or mitigate its exposure fluctuations
28
commodities
market
though
EQUITY RESEARCH
visibility into such activity is generally quite limited and can complicate whether BG earnings believes forecasts it can in the near returns term. over We time will in be the listening closely over the course of the CPO integration to gauge enhance acquired business by adopting a different risk management strategy than traditionally employed by CPO. Furthermore, we do not underestimate the importance of balance sheet strength and access to capital markets -- not only in trough periods, but equally important in periods of rising commodity costs where working capital requirements can become burdensome and stress liquidity positions. share, expand capacity, Those processors with strong balance and consolidate distressed assets. sheets are arguably advantaged in their ability to capture market Interestingly, on this basis, our math suggests that, if approved, BGs all-stock acquisition of CPO one of the least levered names in the large cap agribusiness sector would noticeably improve its liquidity profile. of CPO, the BG/CPO may credit ratios Given the below average leverage profile pro BGs forma balance to sheet secure and an enhance ability combinations also
additional round of new debt financing. In this sense, aside from the strategic rationale for BGs announced acquisition of CPO, we also case view study the for transaction other as a pseudo balance in the sheet future. recapitalization maneuver and one that very well may serve as a agribusiness processors Separately, wed note that if grain and oilseed prices were to see recent declines hold, this would likely reduce working capital needs (although not necessarily a positive for credit metrics tied to the companys income statement).
Figure 29: BG - Potential Financing Surplus (Before and After CPO Acquisition)
BG (standalone) BG (pro forma for CPO)
29
EQUITY RESEARCH
Note: Cash surplus (gap) based on discretionary FCF of $296M and $446M in NT and FY09 respectively, normalized $940M/yr thereafter Note: Coverage and Leverage ratios calculated on an 8-quarter rolling basis *Near Term (NT) implied cash surplus (gap) is net of current cash and ST securities *ST revolving credit facilities, including BG's $600M CP program, total $1.6bn, with $426M drawn upon as of March 31, 2008 **FY10 onward based on normalized discretionary cash flow ***LT revolving credit facilities total $2.1bn due through 2011, with $760M drawn upon as of March 31, 2008 (and $0 of CPOs $500M revolver) ****excludes equity units / convertible notes of $690 million after 2018
Source: FactSet, company filings and Lehman Brothers' estimates and analysis
Aside from Co-Product Risk in 09, CPO Addition a LT Positive for BG

Relative to ADM and BG (standalone), Corn Products International (CPO purchased by BG on 6/23/08, pending approvals) operates a considerably more focused network of assets and sells a far less diversified portfolio of end products. While the former processors derive scale partly from their product breadth, we would argue that Corn Products derives scale within its businesses via its concentration of assets (CPO ranks third in installed corn processing capacity in North America and first in South America). In fact, while BG and ADM each generated more than 10x the revenue generated by CPO in calendar 2007, they generated only 3.8x and 6.1x the operating profit of CPO, respectively. CPOs concentration of assets within corn In other words, and its processing
selection of end-markets have translated into a sizable margin differential on a consolidated basis versus its peers, one which now stands to benefit BG.
Figure 30: Grain Processor Revenue Comparison

$ in millions / multiples are indexed vs. CPO
$60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $CPO BG ADM $3,391
Figure 31: Grain Processor EBIT Comparison

$ in millions / multiples are indexed vs. CPO
$2,500 $2,000
15.6x 11.2x
6.1x 3.8x
$341
$1,500 $1,000 $500 $CPO
BG
ADM
This is not to suggest that CPOs model is necessarily superior (in fact, returns on invested capital for these processors are not dissimilar; see figure), but rather to highlight that there are important differences in operating models between CPO and its grain processing peers that we believe are worth exploring, as 1) they may have implications for operating performance over the next 12 months and 2) over the long term, may provide some takeaways that can be incorporated into BGs operating philosophies.
30
EQUITY RESEARCH
Figure 32: Grain Processor ROIC Trend Comparison (20032007)

16%
ADM
BG
CPO
14%
12%
10%
8%
6%
4%
2%
0% 2003 2004 2005 2006 2007
Importantly, certain business models provide greater insulation to supply-push inflation. 2009. Several differences exist in CPOs model that may insulate it from aforementioned risk factors heading into Specifically, these differences include: 1) a practice in its North American operations of hedging corn cost exposure upon securing customer supply contracts at fixed prices, 2) a large percent of operating profit derived outside of North America, 3) a market leadership for advantage corn in South with America and limited with 4) or a favorable focus no on direct implications traditional milling operations,
processing
business,
exposure to ethanol production or ag services. For instance, supply-side events tend to be regionalized, such that grain processors (like those within our coverage universe) who enjoy a fairly well geographically-diversified asset base are able to offset headwinds in one region with profit tailwinds in another. like CPO, Similarly, may also be those better processors suited, by in whose portfolios are concentrated more heavily in higher value-added business lines, our view, to manage power. supply-push inflation pressures commanding pricing
Likewise, a portion of CPOs contracts with customers tend to be based on tolling agreements, which effectively shift the risk of grain prices to the customer, while raw material requirements for other contracts are hedged at the time the contract is signed. And, the given that grain requirements like CPO are often hedged but cobeen products (e.g. corn feed, corn oil, corn meal) are sold closer to market, processors
31
have,
perversely,
EQUITY RESEARCH
beneficiaries from supply-push inflationary pressures, at least during the hedged period. North American Risk Management Practices: In North America, CPOs history has been to lock-in corn costs upon securing customer supply contracts at fixed prices. sometimes management operates under tolling philosophy, particularly With other customers, it agreements. in This spread products, starch-based
like high fructose corn syrup, tends to insulate the companys North American operating profits from unfavorable increases in corn costs, like the recent spike brought about by the late start to the growing season and flooding in the Midwest. In fact, as This discussed previously, this operating philosophy actually enables CPO to benefit during a period of rising raw material costs. is because pricing of the raw material (corn) tends to drive passthrough pricing of co-products (corn feed, corn oil, and corn meal). To the extent that CPO is exposed to favorable pricing, but has locked in its raw corn requirements, it allows the company to realize incremental profit. Of course, the converse may also be true in a falling corn cost environment. And, risk management only delays the onset of higher We believe the ability to cost increase hinges costs, which eventually will be passed through in the form of higher prices on negotiated contracts. pass through the entirety of the input
largely on whether the cost pressures are supply-push driven or demand-pull driven. degree of leverage Demand-pull driven cost pressures imbue some with the processors, particularly in an On the
environment characterized by tight processing capacity.
other hand, supply-push inflation creates risk of elasticity in demand, particularly where excess processing capacity is in place and acts as a limiting factor in pricing power. As we look to the key end-of-year contract renegotiation period and price setting for 2009, although capacity currently remains tight, the source of the inflationary pressure has become increasingly supply-push driven as a result of a likely weak US harvest an important watch point, in our view. Geographic Diversification: Just 30% of Corn Products While
Internationals revenue was generated in the US in 2007.
not immaterial, the combination of geographic diversification and spread management policies in North America may provide greater insulation to CPO relative to other processors within our coverage that are more exposed to a likely weak North American harvest.
32
EQUITY RESEARCH
Not only is CPO geographically diversified, but the company enjoys a strong leadership position in its South American corn milling operations, including the largest installed processing capacity in Argentina, Brazil, Chile, Colombia, Peru and Venezuela. view, this leadership position lends support to CPOs In our above-
average operating margins in this business (15.2% in South America versus 6.9% in North America since 2003). Also notable, in our view, is that this leadership position has provided somewhat more profit stability than in North America (1 standard deviation in operating profit is 75% from the long-term mean in South America versus 97% in North America) an even more impressive feat considering that tolling agreements and hedge policies on fixed price contracts are less widely employed in CPOs South American operations. Rather, we believe this is a function of the companys pass-through pricing capability in the region. And, as a final note, since the availability of corn in South America has not been impacted directly by the likely lower tonnage US harvest, we believe CPOs asset utilization in the region will not suffer. Furthermore, the company may be able to offset weakness in its US operations by utilizing its non-US assets to take advantage of market share opportunities in other parts of the world. If the US were to enter down the path toward an interest rate tightening cycle, we believe this effect would be even more pronounced. A Focus on Traditional CPO its has Processing little to Operations: exposure to Unlike ADMs
exposure to ethanol, trading, and ag services, or BGs exposure to fertilizer, this limits very non-traditional in other, more agricultural processing businesses. opportunity While at times some may argue participate
profitable or faster growing markets, we believe this focus on traditional processing will hold the company in good stead heading into 2009. remain Specifically, although fertilizer profitability may wed note that trading profits are nearly intact,
impossible to forecast, ethanol profitability has been squeezed by the combination of high corn prices and a glut of production capacity, and ag services is facing very difficult YoY comparisons along with a set of new headwinds. view, for shareholders. It has CPOs focus on traditional kept spending on capacity processing operations has had another unintended benefit, in our expansion at more balanced levels, allowing for more cash to be returned to shareholders. 27.2% increase for BG. In fact, CPOs diluted share count between 2003 and 2007 has increased only 5.6% compared with a Also during this period, CPO has increased its dividend on average 15% per year, compared with ADMs 14% and
33
EQUITY RESEARCH
BGs 11%.
Interestingly, this discipline has also kept CPOs
balance sheet in very healthy shape seemingly a selling point for BG in its announced acquisition of CPO.
Figure 33: Capital Expenditures vs. Prior Year's PP&E

40% 35% 30% 25% 21% 20% 15% 10% 5% 0% 2004 2005 2006 2007 2008 9% 9% 15% 12% 11% 21% 17% 13% 23% 19% 20% 14%
ADM
BG
CPO
34%
13%
This
is
by of
no
means
to
imply
that
CPO in
has
neglected
growth market, The
opportunities in the business. history innovation,
In fact, the company has a long the sweeteners
particularly
dating back to its patent on crystalline dextrose in 1923. corn syrup, which it began producing in 1976.
company was also a pioneer in the development of high fructose And more recently (April 2008), CPO unveiled one product in its sweetener pipeline that we believe may have significant potential in the market -- a new low calorie, all natural sweetener, called Enliten, made from the Stevia plant. Specifically, CPO announced that it had entered into a long-term agreement with Morita Kagaku Kogyo Company Ltd. of Osaka, Japan. global marketing The agreement gave CPO the exclusive license of and distribution rights. Given Cargills Moritas patented stevia strain, its manufacturing technology, and exclusive Stevia-based partnership with Coca Cola (Truvia), we believe that CPO is well positioned to be the supplier of choice to other beverage list manufacturers. of applications And, wed note that the the sweeteners extends well beyond
carbonated soft drink market, and includes yogurts, cereals and snack bars, among other items.
BG Valuation: Points of Insulation Support Premium vs. Grain Peers

Our $97 price target is predicated on a multiple of 14.5x our midcycle EPS estimate of $6.69 -a premium versus both BG's historical mid-cycle multiple of 10.8x and BGs closest peer ADM (11.9x). Looking into 2009, we believe BGs premium is warranted
34
EQUITY RESEARCH
in light of the aforementioned insulation points provided by the combination of the companys geographic exposure and business mix. Beyond this, we also believe by its BGs growth algorithm to may the be crop structurally advantaged relative exposure
production expansion potential of South America.
In addition, we
believe favorable demand-side fundamentals are likely to remain in place over the long-term for oilseeds, fertilizer, and corn.
Price to Mid-Cycle EPS

On a price to mid-cycle EPS basis, we estimate that BG currently trades at a multiple of 13.6x or a 26% premium to its historical mid-cycle valuation versus ADM at 11.9x (an -18% discount).
Figure 34: BGs Mid-Cycle P/E Multiple

24x
Figure 35: Mid-Cycle P/E Multiple BG vs ADM

24x
ADM BG
Current: 13.6x
20x
20x 16x
P/E
16x
P/E
12x
12x 8x
Average: 10.6x +1 St Dev: 13.1x -1 St Dev: 8.1x
8x
4x
4x 0x Aug-03
0x Aug-03
Aug-04
Aug-05
Aug-06
Aug-07
Aug-08
Aug-04
Aug-05
Aug-06
Aug-07
Aug-08
Price to Book Value Multiple as a Possible Floor

In our view, should the operating environment swing unfavorably beyond provide our a expectations psychological and BG prove less insulated the than we of anticipate, we believe historical price to book values tend to support level for shares agribusiness processors. For BG, its historical trough book value Taking todays book value of $68.76
multiple has been 1.1x, which it reached in February 2002 in a very different environment. price. and applying a historical trough multiple implies a $76 share
35
EQUITY RESEARCH
Figure 36: BGs Price to Book Multiple

4x
Figure 37: Price to Book Multiple BG vs. ADM

4x
ADM BG
Current: 1.3x
3x
P/BVPS
3x
P/BVPS
2x
2x
1x
Average: 1.8x +1 St Dev: 2.1x -1 St Dev: 1.4x
1x
0x Aug-02
Aug-03
Aug-04
Aug-05
Aug-06
Aug-07
Aug-08
0x Aug-02
Aug-03
Aug-04
Aug-05
Aug-06
Aug-07
Aug-08
BG Looking Ahead to Fiscal 3Q08

In our view, BGs fiscal 2Q07 EPS result, which exceeded the companys annual EPS results in all years prior to fiscal 2007, demonstrated both dollar profit and percent margin strength across all EPS three growth of of its a primary +580% like business units: Agribusiness, While Edible small Oils Fertilizers, and Food Products, enabling the company to post +250% against year-ago within comparison. companys pockets weakness, the
business, are expected to show improvement into fiscal 3Q, we believe sustainability of performances well-above historical norms will be the key item of focus for the majority of BGs business lines. On this front, although our EPS forecast of $3.46 stands more than $1.00 p/s above Consensus, we believe it is well within reach, as it implies sequential moderation to a mere +27% YoY growth rate against an easier +76% year-ago comparison.
Figure 38: BG LEH EPS Outlook versus Consensus

Bunge Limited Ticker Last Price Stock Rating Sector Rating Reporting Date Reporting Time Conf. Call Time Dial-In (US) Dial-In (Int'l) Website BG $90.85 3-Underweight 1-Positive 10/24/2008 (tentative) BMO TBA TBA TBA www.bunge.com EPS Outlook Sep '07A Sep '08E YoY % Chg FY07A FY08E YoY % Chg FY09E YoY % Chg LEH $2.72 $3.46 27% $6.45 $13.00 101% $13.01 0% FC $2.72 $2.45 -10% $6.45 $10.62 65% $9.78 -8% Current fiscal qtr: 3Q08 Items Affecting Comparability
1
Excl. $0.02 p/s impairment charge Excl. $0.45 p/s impairment charge, $0.17 p/s VAT provision, and $0.11 p/s gain on asset sale
2 3
Excl. $0.65 p/s gain on favorable tax rulings and $0.07 p/s gain on sale of land in edible oils business
Source: Company filings, Lehman Brothers estimates, FactSet, and FirstCall
By segment, weve modeled YoY percent margin contractions, though still healthy topand bottom-line growth objectives. Specifically, we anticipate continued strength in oilseed crushing
36
EQUITY RESEARCH
margins support
(figure
below
and
left)
and
agricultural
services of
to
above-average
Agribusiness
operating
margins
4.2% In
(versus 2.3% historically in fiscal 3Q but a -120 bps contraction versus fiscal 3Q07), leading to +29% operating profit growth. Fertilizers, we expect fundamentals to remain strong (figure below and right), though weve modeled an arguably conservative 9.4% operating margin, which compares with 12.4% historically in the quarter and 13.0% last year. Our outlook for profit growth despite margin contraction reflects very strong NPK fertilizer pricing partially expansion offset by the combination with of procurement/production capital outlays of $2 costs and an escalation in initiatives billion in coming years. infrastructure spending to support expected
Figure 39: Oilseed Crushing Margins

$3.00
Figure 40: Fertilizer Profitability Index

$600 Margin ($/ton) 5yr Avg + 1st Dev - 1st Dev
Soy Crush Margin ($/Bu)
Fertilizer margin ($/ton)
$2.00
Margin ($/Bu) 5yr Avg + 1st Dev - 1st Dev
$450
$300
$1.00
$150
$-
$-
Aug-99 Aug-00 Aug-01 Aug-02 Aug-03
Aug-04 Aug-05 Aug-06 Aug-07 Aug-08
Aug-99
Aug-00
Aug-01 Aug-02
Aug-03
Aug-04
Aug-05 Aug-06
Aug-07
Aug-08
Source: Bloomberg and Lehman Brothers analysis
Source: Bloomberg and Lehman Brothers analysis
In Food Products, we expect lagging price increases to approach the onerous cost curve. Accordingly, weve modeled Edible Oils and Milling Products operating profit of $8 million and $42 million, respectively, versus $6 million and $21 million in the year-ago period. Below the line, we look for FX translations and reduced YoY
financing costs to partially offset increased minority interest and a higher diluted share count. 38%. What to do with the stock: Despite our expectation for sustained Weve modeled a tax rate of
above-trend performance in f2H08, we believe sentiment on the stock hinges more importantly on evidence of sustained earnings strength remains into FY09 (pro forma for CPO), which at this us stage the admittedly difficult to forecast, keeping on
sidelines.
37
EQUITY RESEARCH
Business Description and Company Overview

With roots to the 1818 founding of a Dutch-based grain trading company and subsequent expansion initiatives into grain operations in Europe and South America, downstream food products in South America, fertilizer in Brazil and agribusiness processing in the US, Bunge Limited (NYSE: BG) today is a leading full service agricultural commodities firm, headquartered in White Plains, New York, and registered in Bermuda. processing capacity, the BG is a global leader in oilseed producer and supplier of largest
fertilizer to farmers in South America, and a major purveyor of packaged vegetable oils worldwide. and India) provides integrated Its geographically diverse ranging from the Agribusiness asset network (North and South America, Europe, China capabilities, origination, storage, transportation, processing and merchandising of agricultural commodities and end products.
Figure 41: BG - Senior Management Team

Chairman of the Board / CEO Alberto Weisser > Chairman of the Board, Chief Executive Officer Officer Since: 01/1999 Age: 51 CFO Jacqualyn A. Fouse > Chief Financial Officer Officer Since: 07/23/2007 Age: 45
Other Notable Jorge Born > Deputy Chairman of the Board Officer Since: 2001 Age: 45 Mario A. Barbosa Neto > Chief Executive Officer of Bunge Fertilizantes S.A. Age: 60 Andrew J. Burke > Co-CEO - Bunge Global Agribusiness Officer Since: 01/2002 Age: 51 Jean-Louis Gourbin > Chief Executive Officer of Bunge Europe Officer Since: 01/2004 Age: 59 Archibald Gwathmey > Co-CEO - Bunge Global Agribusiness Officer Since: 1999 Age: 55 Carl L. Hausmann > Chief Executive Officer of Bunge North America Inc. Officer Since: 10/15/2002 Age: 60 Raul Padilla > Chief Executive Officer of Bunge Argentina S.A. Officer Since: 1999 Age: 51 Sergio R. Waldrich > Chief Executive Officer of Bunge Alimentos S.A.
38
EQUITY RESEARCH
Reporting Segments
BGs operations are segmented into four primary reporting units: Agribusiness, Products. Fertilizer, Edible Oil Products and Milling Combined, these four segments reported fiscal 2007
revenue of $37.8 billion and EBIT of $1,283 million.
Figure 42: BG (p.f.) FY07 Revenue by Segment

Corn Products Intl, Milling 8.2% Products, 3.2% Edible Oil Products, 13.6%
Figure 43: BG (p.f.) Est. Mid-Cycle EBIT by Segment

Corn Products Intl, 16.9% Milling Products, 3.1% Edible Oil Products, 5.4% Agribusiness , 42.8%
Fertilizer, 9.5%
Agribusiness , 65.5%
Fertilizer, 31.7%
Source: Lehman Brothers' estimates and analysis
Agribusiness
BGs Agribusiness segment reported fiscal 2007 revenue of $27.0 billion and EBIT of $776 million. (versus historical 2.8%). We estimate ongoing (mid-cycle) earnings power of $1,062 million based on a 3.5% operating margin Aggregate production capacity in this The company operates 302 division is 134,000 metric tons per day, with aggregate storage capacity of 17.3 million metric tons. grain storage facilities, 56 oilseed processing plants, and 46 marketing and distribution offices worldwide.
39
EQUITY RESEARCH
Figure 44: BG - Agribusiness Sales Trend
Figure 45: BG - Agribusiness Operating Profit Trend

$1,000
$30,000
FY02-07 CAGR: 20.8%
FY02-07 CAGR: 9.2% FY02-07 Avg Margin: 2.6%
$24,000
$800
$18,000
$600
$12,000
$400
$6,000
$200
$0 FY02 FY03 FY04 FY05 FY06 FY07
$0 FY02 FY03 FY04 FY05 FY06 FY07
This segment conducts traditional origination, storage, transport and processing of agricultural commodities, primarily soybeans, canola/rapeseed, sunflower seed, wheat and corn. Unlike ADM, BG leases most of its transportation assets in this segment, but it does make selective investments in port and storage facilities. BG is also a refiner of sugar and producer of sugar-based ethanol through its sugarcane mill and ethanol production facility in Brazil, Santa Juliana, which it acquired in 2007. It also recently acquired Sugar Trading capabilities from Tate & Lyle. In addition to traditional including processing through animal hogs), businesses, Diester in BG also as a
participates in biodiesel and corn-based ethanol markets minority include poultry, investor, feed its feed and International S.A.S. (DII) joint venture in Europe. manufacturers chicken (for and primarily wheat/corn
Industries Customers and millers,
livestock
among others. BGs vegetable oils are used in the production of edible oil products for the foodservice, food processor and retail markets, as well as for the production of biodiesel. Secondarily, from farmers BG acts as a financing commodity intermediary purchase in Brazil and
(generally at local market interest rates), purchasing soybeans through prepaid contracts advances. These advances are secured by the farmers crops and a
claim on the land. Proximity to the farmer and visibility into raw material availability facilitate BGs international trade flows and risk management services. Major competitors of BGs agribusiness operations include ADM, Cargill, processors companies.
40
Dreyfus, or
and
others,
like
regional
agribusiness and trading
smaller
agricultural
cooperatives
EQUITY RESEARCH
Fertilizer
BGs Fertilizer segment generated $3.9 billion of revenue and $405 million of EBIT in fiscal 2007, and has seen significant growth in fiscal 2008 year-to-date. (versus BGs historical We estimate ongoing earnings power of 10.5% in fertilizer). Aggregate $786 million in this segment, based on a 13.0% operating margin production capacity in this division is 162,000 metric tons per day, with aggregate storage capacity of 3.3 million metric tons. BG operates 44 processing plants. Cajati, Catalao, and Tapira, Its four mines include Araxa, annual production capacity with
(million metric tons) of 0.7, 0.6, 1.6, and 2.1, respectively and remaining reserves (years) of 20, 16, 31, and 53.
Figure 46: BG Fertilizer Sales Trend
Figure 47: BG Fertilizer Operating Profit Trend

$500
$5,000
FY02-07 CAGR: 23.1%
$4,000
$400
$3,000
$300
$2,000
$200
$1,000
$100
$0 FY02 FY03 FY04 FY05 FY06 FY07
$0 FY02 FY03 FY04 FY05 FY06 FY07
BG,
combined
with
its
controlling
interest
in
FOSFERTIL
(a
publicly traded phosphate and nitrogen producer in Brazil), is the leading producer, blender and supplier of fertilizer in mining operation in Brazil. South America, and lays claim to an integrated fertilizer phosphate Its NPK (Nitrogen, Phosphate, and Potash) fertilizer blends comprise a 26% share of the Brazilian market. The companys largest fertilizer products are sold for commercial farming purposes, catering to growers of soybeans, corn, cotton and sugarcane, wheat and coffee, but also have a strong retail presence and separately are used as phosphate-based animal feed ingredients. The primary products in BGs acid, nutrients single operations include and
phosphate
rock,
sulfuric
super
phosphate,
phosphoric acid, while Fosfertil produces nitrogen and phosphatebased fertilizers, like urea, monoammonium phosphate (MAP) and triple superphosphate are (TSP). from Fully its 75% of BGs phosphate a requirements sourced mining operations
competitive advantage, in our view, particularly factoring the

41
EQUITY RESEARCH
transportation advantage relative to the longer supply chains of competitors. back haul Likewise, BGs ag services integration allow for on land and by water. Non-phosphate opportunities
fertilizer capabilities are limited primarily to blending, which require BG to purchase sulfur (for sulfuric acid) from third-party suppliers. fertilizers BG in purchased 2007, 62% of its of demand its for nitrogen-based from external and 100% potash
suppliers. The company entered a JV with Office Chrifien des Phosphates, or OCP, in 2007 to produce fertilizers in Morocco, to be used in the and manufacture MAP and of phosphoric acid, triple for superphosphate, diammonium phosphate (DAP)
shipment to Brazil, Argentina and other markets in Latin America. BGs primary fertilizer competitors in Brazil are Copebrs,
Fertipar, Mosaic, Petrobras, Adubos Trevo (Yara) and Heringer.
Edible Oil Products

BG recorded Edible Oils revenue of $5.6 billion in fiscal 2007 and $52 million in EBIT. We estimate ongoing earnings power of $135 This million based on BGs historical 1.9% operating margin.
segment produces products like salad oils, shortenings, margarine, and mayonnaise primarily using inputs produced in its oilseed processing operations. In Brazil, BG markets products under its In the US, BGs Elite own brand names, including Soya packaged oils, Delicia and Primor margarines, and Bunge Pro in foodservice. brand is a leading edible oil brand in the foodservice channel. Enhanced products include NutraClear low linolenic soybean oil, as well as palm oil and palm oil blends. In Europe, BG is the market leader Venusz, in consumer packaged vegetable Olek, oils, with brands and and like Floriol, Kujawski, Unisol, Ideal Oleina. food
Customers include baked goods companies, snack food producers, restaurant chains, foodservice distributors manufacturers. In edible oils, primary competitors in the US,
Brazil and Canada are ADM, Cargill, Associated British Foods and Unilever. In Europe, BGs main packaged oil competitors are ADM, Cargill, and Unilever.
42
EQUITY RESEARCH
Figure 48: BG Edible Oils Sales Trend
Figure 49: BG Edible Oils Operating Profit Trend

$150
$7,500
FY02-07 CAGR: 34.3%
$6,000
$120
$4,500
$90
$3,000
$60
$1,500
$30
$0 FY02 FY03 FY04 FY05 FY06 FY07
$0 FY02 FY03 FY04 FY05 FY06 FY07
Milling Products
BG recorded Milling Products revenue of $1.34 billion in fiscal 2007 and $50 million in EBIT. margin. fortified We estimate ongoing earnings power of $78 million based on this segments historical 5.2% operating Primary products in this business include wheat flours corn meal, corn-soy blend, corn oil, and corn feed and dry milled corn meal, flours and grits, in addition to soyproducts. Customers include bakery and foodservice companies in Brazil and ready-to-eat cereal, snack food and brewing industries in North America. Major competitors in Brazil are Pena Branca Alimentos, market M. Dias Branco S.A. and Moinho Pacifico, corn but this remains fragmented. North American products
competitors include Cargill and Didion Milling Company.
Figure 50: BG Milling Products Sales Trend

$1,500
Figure 51: BG Milling Products Op Profit Trend

$100
FY02-07 CAGR: 16.3%
$1,200
$80
$900
$60
$600
$40
$300
$20
$0 FY02 FY03 FY04 FY05 FY06 FY07
$0 FY02 FY03 FY04 FY05 FY06 FY07
Corn Products International (acquisition approvals pending)

Incorporated in 1997, Corn Products International (NYSE: CPO) is primarily a pure-play corn miller with manufacturing assets spread across a number of continents, selling a diverse set of corn-based
43
EQUITY RESEARCH
end-products to a wide array of customers. The company recorded $3.4 billion in revenue in fiscal 2007 (8% of BGs fiscal 2007 pro forma revenue and 17% of its estimated pro forma mid-cycle EBIT), with the majority (61%) of CPOs consolidated revenue generated in North America, followed by South America (27%) and Asia/Africa (12%). CPO is the fourth largest corn miller in North America (owns and operates 11 plants), and the leading refiner (12 plants) in South America. The company operates 7 plants in Asia/Africa. BG announced the acquisition of CPO in June 2008. Customary approvals are pending.
Figure 52: BG - Corn Products Intl Sales Trend

$3,500
Figure 53: BG Corn Products Intl Op Profit Trend

$500
FY02-07 CAGR: 12.6%
$2,800
$400
$2,100
$300
$1,400
$200
$700
$100
$0 FY02 FY03 FY04 FY05 FY06 FY07
$0 FY02 FY03 FY04 FY05 FY06 FY07
CPO
serves
broad
array
of
customers,
including
food
manufacturers (25% of fiscal 2007 revenue), beverage manufacturers (16%) and brewers (11%). Co-products, like corn oil, are also sold into the food channel, while still other co-products are sold into the commercial poultry and livestock channel as animal feed (11%). Other products are sold into the pharmaceutical and paper/packaging sectors. Corn-based sweeteners are a primary product of CPO (57% of revenue in fiscal 2007). As a substitute for sugar, fluctuations in cane sugar and beet sugar can influence pricing of corn sweeteners. The portfolio of CPOs corn sweeteners includes: high fructose corn syrup (HFCS), glucose corn syrups, high maltose corn syrups, caramel color, dextrose, polyols, maltodextrins and glucose, among others. HFCS-55 flavored The company sells two types of high fructose corn syrup: (for soft drinks) and HFCS-42 are a (for foods low and fruitcorn beverages). Polyols popular calorie
sweetener product; these include sorbitol and maltitol used in food and beverages, as well as personal care / oral care products. Glucose corn syrups are also popular in baked goods. Likewise, high maltose corn syrup is used as a fermentable sugar in beers
44
EQUITY RESEARCH
and
in
confections has other
(as
is
monohydrate
dextrose). like used
Anhydrous intravenous Other cornfor their
dextrose derived
commercial like
applications, are
injections, and industrial uses, like wall board. products, maltodextrins texture/bulking properties in foods.
Starches are also a major product of CPO, representing 22% of revenue in fiscal 2007. Like sweeteners, starches are used in foods, generally for their texture/binding properties, but they are often sold to paper and packaging manufacturers to provide a smooth surface in paper products, to strengthen recycled paper products, and in some cases to serve as an adhesive. products are also widely used in the construction Starch materials,
textiles, pharmaceuticals, cosmetics, water filtration, and more. Co-products comprised roughly 21% of CPOs fiscal 2007 revenue. There are three major co-products: 1) refined corn oil from germ, which gluten is is sold as cooking is sold oil as or used in feed the to production the pet of margarine, salad dressings, shortening, and mayonnaise, 2) corn feed, as which a high animal for commercial food and livestock and poultry industries, and 3) corn gluten meal, which sold protein feed chickens, aquaculture primarily. Separately, steepwater (left over from the
wet milling process) is sold as an additive for animal feed. CPOs primary competitors in US corn milling include ADM, Cargill, and Tate & Lyle. South America, The companys Mexican operations are subject to Cargill and National Starch are CPOs primary competition from US imports and ALMEX (an ADM/Tate & Lyle JV). In competitors, though the company enjoys strong market shares in Argentina, Brazil, Chile, Colombia and Peru. Historically, CPO has followed a practice of hedging out its corn cost exposure upon America. This entering contracts with customers in North is not utilized in South America or practice
Asia/Africa, and it remains unclear at this stage whether change of control in the pending sale to BG will influence CPOs North America hedging practices.
Corporate Governance (BG) Management Profile and Biographies

Alberto Weisser has led Bunges management team as CEO for nearly a decade, and has served as Chairman of the board since 2001. Jacqualyn A. Fouse has held the position of CFO since 2007 and has been at Bunge since 2002.
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EQUITY RESEARCH
Figure 54: Executive Officers

N am e Age Al ber t o W ei s s er 52 J acqual yn A.Fous e 46 M ar i o A.Bar bos a N et o 61 Andr ew J .Bur ke 52 J eanL oui s G our bi n 60 Ar chi bal d G w at hmey 56 C ar lL .Haus mann 61 RaulPadi l l a 52 Ser gi o R.W al dr i ch 50
* Ages ar e cur r entas ofFY07 10K
Source: Company Documents
Pos i t i on( s ) C hai r man & C EO C FO C EO ,Bunge Fer t i l i zant es S. A. C oC EO ,Bunge G l obalAgr i bus i nes s C EO ,Bunge Eur ope C oC EO ,Bunge G l obalAgr i bus i nes s C EO ofBunge N or t h Amer i ca I nc. C EO ,Bunge Ar gent i na S. A. C EO ,Bunge Al i ment os S. A.
Alberto Weisser has served as CEO since 1999 and as Chairman since May 2001. He joined Bunge in July 1993 as CFO and was appointed to the board in May 1997. For the 15 years prior to his employment at Bunge, Mr. Weisser worked for the BASF Group in Brazil, Germany, U.S.A. and Mexico. He is a member of International Papers board of directors, The Rabobanks on North American Relations, Agribusiness and Council Advisory of the Board, Council Foreign
Americas. Jacqualyn A. Fouse has served as CFO since July 2007. She joined
Bunge from Alcon, where she served as SVP, CFO and Corporate Strategy since 2006, and SVP and CFO since 2002. Ms. Fouse was CFO at SAirGroup from 2001-2002 and Group Treasurer at Nestl SA from 1999-2001. Her career at Nestl SA began in 1993, before which she held several positions at Alcan, including Manager Corporate Investments and Domestic Finance. Mario A. Barbosa Neto has served as CEO of Bunge Fertilizantes S.A., and its predecessor company Fertilizantes Serrana, since 1996. Prior to Serrana, Mr. Barbosa Neto served as superintendent of Fosfertil S.A. from 1992 to 1996 and was the CFO of Manah S.A. from 1980 to 1992, giving him over 20 years experience in the Brazilian fertilizer industry. In addition to serving on the board of directors of Bunge Fertilizantes, Alpargatas vice he is president Txtil the and of the Administrative Council of Fosbrasil S.A., and is a board member of Fertifs, Alimentos. Ultrafertil, He is also Santista of Bunge president International
Fertilizer Association. Andrew J. Burke serves as co-CEO, Bunge Global Agribusiness. He joined Bunge Limited as managing director, soy ingredients and new business development in January 2002. Previously, he served as U.S. CEO of Degussa, a German chemical company that he joined
46
EQUITY RESEARCH
in1983. positions
Mr. at
Burke
held and
variety also
of
finance as the
and
marketing Vice
Degussa
served
Executive
President of its U.S. Chemical Group. Mr. Burke previously worked for Beecham Pharmaceuticals and Price Waterhouse & Company. Jean-Louis Gourbin has served as CEO of Bunge Europe since January 2004. From 1999 until the beginning of his tenure at Bunge, he was president of the Danone Groups biscuits and cereal products division. Previously, Mr. Gourbin worked for more than 15 years with the Kellogg Company, eventually becoming president of Kellogg Europe. He has also held positions at Ralston Purina and CPC. Archibald Gwathmey serves as the co-CEO of Bunge Global
Agribusiness. He joined Bunge in 1975, and has over 25 years of experience in commodities trading and oilseed processing. During his career with Bunge, Mr. Gwathmey has served as the managing director of the international marketing division and the head of the U.S. grain a and oilseed of processing the divisions. Oilseed He has also served as director National Processors
Association. Carl L. Hausmann has served as CEO of Bunge North America since January 2004. He was previously CEO of Bunge Europe, the position he held since coming to Bunge with the acquisition of Cereol S.A. in 2002. At Cereol, Mr. Hausmann was president and CEO, and had also held chief executive positions with Cereol affiliates Eridania Bghin-Say, Cereol Europe and Central Soya. Mr. Hausmann began his career in 1978 at Continental Grain, where he worked in South America, Europe, Africa, and The United States. He is a past president of Fediol, the European association of oilseed crushers. Raul Padilla serves as CEO of Bunge Argentina. He joined Bunge in 1991, and now has over 20 years experience in the oilseed processing and grain handling industries in Argentina. He began his career with La Plata Cereal in 1977. Mr. Padilla serves as president of the Argentinean National Oilseed Crushers Association and as vice president of the International Association of Seed Crushers. He is also a director of the Buenos Aires Cereal Exchange and the Rosario Futures Exchange. Sergio R. Waldrich has served as the CEO of Bunge Alimentos since 2002. In 1972, Mr. Waldrich joined Ceval Alimentos, which was acquired by Bunge in 1997. He worked in various positions over his career with the company, eventually serving as head of the poultry division. When Bunge spun off the poultry division into Seara Alimentos, a separate company, Mr. Waldrich was named its vice
47
EQUITY RESEARCH
president and general manager. He rejoined Ceval Alimentos in August 2000. Mr. Waldrich is the former president of the Brazilian Pork Industry Association and the Brazilian Pork Export Association.
Board of Directors
There are eleven directors on Bunges board, nine of whom are independent. of the Average director coming tenure for is roughly seven each years. and Bunges director elections are staggered, with roughly one third directorships due reelection year directors serving three-year terms.
Figure 55: Bunge, Ltd Board of Directors

N am e Age Al ber t o W ei s s er 52 J or ge Bor nJ r . 45 Er nes tG . Bachr ach 55 Enr i que H. Boi l i ni 46 Mi chaelH. Bul ki n 69 O ct avi o C ar abal l o 64 Fr anci s C oppi nger 56 Ber nar d de L a Tourd' Auve 63 W i l l i am Engel s 48 L .Pat r i ck L upo 57 L ar r y G . Pi l l ar d 60
Source: Company Documents
Em pl oyer Bunge,L t d. Bomagr a S. A. Yel l ow J er s ey C api t al ,L L C Pr i vat eI nves t or Es t anci a y C abaa L as L i l as S. A. -
Pos i t i ons H el d C FO ( 19931999) Pr es i dent& C EO ,Bomagr a S. A. Di r ect or ,AdventI nt er nat i onal er s ey C api t al ,L L C M anagi ng M emberatYel l ow J Di r ect or ,M cKi ns ey & C ompany ( pr i ort o 1993) Pr es i dent ,Es t anci a y C abaa L as L i l as S. A. c( pr i ort o 2006) C EO ,Publ i ci t I nt er nat i onal eI nt er medi a Pl Bunge,L t d.( 19701994) Advi s or ,pr i vat ei nves t mentf und;Di r ect or ,Q ui l mes I ndus t r i al ,S. A.( 20032006) C hai r man,DHLW or l dw i de Expr es s( 19972001) s i nce 2003) ;C EO ,Tat e& L yl e PL C ( 19962002) Di r ect or ,Tet r aL avalG r oup (
Di r ect orSi nce 1995 2001 2001 2001 2001 2001 2001 2001 2001 2006 2007
Ownership Structure
Bunges top 10 holders own 47.3% of the companys total shares outstanding. While the top 4 insider holders are directors, yet no one of them owns In more the than one percent holdings of of total all shares insiders outstanding. fact, aggregate
represent only about 1.1% of shares outstanding.
Figure 56: Top Holders

H ol derN am e J anus C api t alM anagementL L C W el l i ngt on M anagementC o.L L P Al l i anceBer ns t ei nL P C api t alW or l dI nves t or s W addel l& Reed I nves t mentM anagementC o. ear ch Fi del i t y M anagement& Res Acadi an As s etM anagement ,I nc. Vanguar dGr oup,I nc. Bar cl ays G l obalI nves t or sN A ( C al i f or ni a) N ew t on I nves t mentM anagementL t d. Top 10 Hol der s
Source: FactSet, SEC Filings
Shar es H el d 12, 540, 047 9, 262, 061 7, 326, 327 6, 854, 600 4, 389, 457 4, 373, 054 4, 033, 180 3, 306, 937 3, 069, 103 2, 334, 761 57, 489, 527
% O /S 10. 31 7. 62 6. 03 5. 64 3. 61 3. 60 3. 32 2. 72 2. 52 1. 92 47. 29
Shar es C hange 880, 414 2, 136, 586 2, 333, 270 2, 278, 824 2, 166, 207 52, 624 577, 552 110, 743 258, 795 204, 588 6, 032, 779
Fi l i ng Dat e 3/31/2008 3/31/2008 3/31/2008 3/31/2008 3/31/2008 3/31/2008 6/30/2008 3/31/2008 3/31/2008 3/31/2008
48
EQUITY RESEARCH
Figure 57: Insider Holdings

H ol derN am e Pos i t i on C oppi nger ,Fr anci s Di r ect or De L a TourDauver gne L aur agua,Ber nar d Di r ect or ;r et i r ed execut i ve W ei s s er ,Al ber t o C hai r man & C EO C ar abal l o,O ct avi o Di r ect or ;r et i r ed execut i ve C ar val ho,Fl avi o Sa G w at hmey,Ar chi bal d C oC EO ,Bunge G l obalAgr i bus i nes s Kf our i ,J oao Fer nando Hat f i el d,PaulH. J PM or gan Par t ner s ,L L C Bur ke,Andr ew J . Ot herexecut i ve of f i cer s /di r ect or s as a gr oup Tot alI ns i derHol der s
Source: FactSet, SEC Filings, Company Documents
Pos i t i on % O /S 767, 995 0. 63 303, 272 0. 25 134, 789 0. 11 71, 961 0. 06 22, 940 0. 02 18, 683 0. 02 8, 214 0. 01 5, 000 0. 00 5, 000 0. 00 3, 755 0. 00 5, 284 0. 01 1, 346, 893 1. 11
Figure 58: BG Income Statement

$ Million Income Statement (ex special items) Net Sales
year-over-year change
2002 2003 2004 2005 2006 $13,882 $22,165 $25,168 $24,302 $26,295
#DIV/0! 59.7% 13.5% -3.4% 8.2%
Mar 1Q07 $7,343

30.5%
Jun 2Q07 $8,298

37.8%
Sep Dec Mar Jun Sep Dec 3Q07 4Q07 2007 1Q08 2Q08 3Q08E 4Q08E 2008E 2009E 2010E $9,729 $12,472 $37,842 $12,469 $14,365 $16,843 $18,676 $62,353 $74,838 $84,169
39.7% 62.3% 43.9% 69.8% 73.1% 73.1% 49.7% 64.8% 20.0% 12.5%
Cost of Goods Gross Profit

$12,567 $20,762 $23,257 $22,682 $24,708 $1,315 $1,404 $1,911 $1,620 $1,587
#DIV/0! 6.7% 36.1% -15.2% -2.0%
$7,043 $300
-2.0%
$7,758 $540
87.5%
$8,820 $11,653 $35,274 $11,602 $13,042 $15,642 $17,651 $57,937 $70,036 $79,340 $909 $819 $2,568 $867 $1,323 $1,201 $1,025 $4,416 $4,802 $4,828
89.8% 59.3% 61.8% 189.0% 145.0% 32.1% 25.2% 72.0% 8.7% 0.5%
Selling, General & Administrative Operating Profit (ex special items)

year-over-year change Depreciation & Amortization
$579 $736
#DIV/0! $168
$702 $702
-4.7% $184
$876 $1,035
47.5% $212
$1,040 $580
-44.0% $278
$994 $593
2.2% $324
$265 $35
-56.8% $86
$307 $233
301.7% $90
$353 $556
148.2% $95
$360 $459
99.6% $114
$1,285 $1,283
116.4% $385
$402 $465
1228.6% $108
$474 $849
264.4% $119
$459 $742
33.5% $111
$468 $557
21.4% $111
$1,803 $2,613
103.7% $440
$1,803 $2,999
14.8% $440
$1,803 $3,025
0.9% $440
Other Expense (Income), net Interest Expense (Income), net Pretax Income (ex special items) Income Taxes
Tax rate Minority Interest Equity in After Tax Earnings of Affiliates Preferred Dividends & Interest on Convertible Notes
$173 $105 $458 $99

21.6% $102
-$118 $113 $707 $232

32.8% $104
$0 $111 $924 $294

31.8% $145 $0 -$5
-$13 $127 $466 $18

3.8% $71 $11 -$5
-$59 $161 $491 $4

0.9% $60 $43 $4
-$31 $39 $27 $6

22.2% $12 $5 $8
-$94 $42 $285 $71

24.9% $35 -$4 $9
-$51 $58 $549 $145

26.4% $58 $6 $9
-$34 $48 $445 $126

28.3% $42 $26 $15
-$210 $187 $1,306 $348

26.6% $147 $33 $41
-$4 $50 $419 $117

27.9% $33 $20 $19
-$249 $36 $1,062 $294

27.7% $109 -$7 $20
-$70 $36 $776 $217

28.0% 87 6 9
-$50 $36 $571 $160

28.0% 63 26 15
-$373 $158 $2,828 $788

27.9% 292 45 63
-$58 $144 $2,913 $816

28.0% 292 45 63
-$58 $144 $2,939 $823

28.0% 292 45 63
Net Earnings (ex special items) Operating EPS (pre synergies)

$257 $2.64
#DIV/0!
$371 $3.61
36.7%
$485 $4.19
16.2%
$389 $3.22
-23.3%
$470 $3.86
20.2%
$6 $0.05
-91.9%
$175 $1.35
579.9%
$352 $2.72
76.4%
$303 $2.25
49.9%
$844 $6.45
67.0%
$289 $2.10
4157.5%
$652 $4.73
250.1%
$478 $3.46
27.3%
$374 $2.71
20.2%
$1,793 $13.00
101.4%
$1,850 $13.01
0.1%
$1,869 $13.26
1.9%
Diluted shares outstanding Consensus Mgmt Guidance Implied Mid-Cycle EPS Other Income Statement Items Operating EPS Reconciliation to GAAP EPS Dividends per share Net payout ratio Margin Calculations (% of Sales) Gross Margin Relative SG&A Operating Margin Pretax profit margin Net profit margin
97.4
102.8
115.6
120.8
121.6
121.6
129.5
129.5
134.5
130.8
137.6
137.8
138.0
138.3
137.9
138.3 $9.78 $9.67 2009E $13.01 $13.01 $0.76 5.8 2009E 6.4 2.4 4.0 3.9 2.5
138.3 $9.97
2002 $2.64 $2.64 $0.00 2002 9.5 4.2 5.3 3.3 1.9
$3.61 2003 $3.61 $3.61 $0.43 11.9 2003 6.3 3.2 3.2 3.2 1.7
$4.80 2004 $4.19 $4.09 $0.48 11.4 2004 7.6 3.5 4.1 3.7 1.9
$4.88 2005 $3.22 $4.39 $0.56 17.4 2005 6.7 4.3 2.4 1.9 1.6
$5.00 2006 $3.86 $4.27 $0.64 16.6 2006 6.0 3.8 2.3 1.9 1.8
$1.31 1Q07 $0.05 $0.05 $0.16 324.3 1Q07 4.1 3.6 0.5 0.4 0.1
$1.49 2Q07 $1.35 $1.30 $0.16 11.8 2Q07 6.5 3.7 2.8 3.4 2.1
$1.33 3Q07 $2.72 $2.70 $0.17 6.3 3Q07 9.3 3.6 5.7 5.6 3.6
$1.97 4Q07 $2.25 $1.82 $0.17 7.5 4Q07 6.6 2.9 3.7 3.6 2.4
$2.40 $2.45 $2.10 $10.62 $11.60-11.90 ($10.88-11.18 ex $0.72 of gains) $6.04 $1.76 $2.69 $2.53 $3.03 $10.02 2007 1Q08 2Q08 3Q08E 4Q08E 2008E $6.45 $2.10 $4.73 $3.46 $2.71 $13.00 $5.95 $2.10 $5.45 $3.46 $2.71 $13.72 $0.66 10.2 2007 6.8 3.4 3.4 3.5 2.2 $0.17 8.1 1Q08 7.0 3.2 3.7 3.4 2.3 $0.17 3.6 2Q08 9.2 3.3 5.9 7.4 4.5 $0.19 5.5 3Q08E 7.1 2.7 4.4 4.6 2.8 $0.19 7.0 4Q08E 5.5 2.5 3.0 3.1 2.0 $0.72 5.5 2008E 7.1 2.9 4.2 4.5 2.9
2010E $13.26 $13.26 $0.76 5.7 2010E 5.7 2.1 3.6 3.5 2.2
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EQUITY RESEARCH
Figure 59: BG Cash Flow Summary

Cash Flow Net Income Depreciation & Amortization Deferred Taxes Changes in Working Capital All Other (incl Bad Debt: see Row 176) Cash from Operations Capital Expenditures
as % of sales
2002 $257 $0 $0 $0 -$257 $0 $0

0.0%
2003 $371 $184 -$17 -$523 -$56 -$41 -$304

1.4%
2004 $485 $212 -$56 $43 $118 $802 -$437

1.7%
2005 $389 $278 -$238 -$195 $149 $382 -$522

2.1%
2006 $470 $324 -$191 -$877 -$41 -$315 -$503

1.9%
1Q07 2Q07 3Q07 4Q07 2007 $6 $181 $533 $836 $844 $86 $176 $271 $385 $385 -$47 -$87 -$64 -$62 -$62 -$213 -$1,045 -$1,392 -$1,563 -$1,563 -$14 -$1 $10 -$7 -$15 -$182 -$776 -$642 -$411 -$411 -$84
1.1%
1Q08 2Q08 3Q08E $289 $1,040 $108 $227 -$11 $22 -$633 -$1,692 -$106 -$80 -$353 -$483 -$148
1.2%
4Q08E
2008E $1,793 $440 $22 -$1,646 -$80 $529 -$1,100

1.8%
2009E $1,850 $440 $22 -$367 -$80 $1,865 -$1,272

1.7%
2010E $1,869 $440 $22 -$283 -$80 $1,968 -$1,431

1.7%
-$210
1.3%
-$382
1.5%
-$658
1.7%
-$658
1.7%
-$372
1.4%
Cash Dividends Discretionary Cash Flow Acquisitions & Investments Divestitures & Sale of Investments Debt Financing Stock Issuance (includes convertibles) All Other Change in Cash
$0 $0 $0 $0 $0 $0 $0 $0
-$105 -$450 -$196 $560 -$59 $62 $133 $50
-$86 $279 -$405 $14 -$166 $348 -$127 -$57
-$120 -$260 -$68 $97 $128 $13 $12 -$78
-$101 -$919 -$165 $67 $299 $693 $36 $11
-$35 -$63 -$92 -$123 -$123 -$301 -$1,049 -$1,116 -$1,192 -$1,192 -$5 $12 $399 $16 -$1 $120 -$28 $14 $1,122 $20 $22 $101 -$67 $18 $1,553 $23 $69 $480 -$192 $55 $922 $877 $146 $616 -$192 $55 $922 $877 $146 $616
-$105 -$146 -$606 -$1,001 -$80 $13 $409 $3 $3 -$258 -$98 $30 $1,128 $30 $30 $119
-$99 -$670 -$98 $30 $1,128 $30 $30 $450
-$105 $487 $0 $0 $0 $0 $30 $517
-$105 $432 $0 $0 $0 $0 $30 $462
Figure 60: BG Balance Sheet Summary

Balance Sheet Summary 2002 Cash & Equiv. (incl. short-term mktbl securities) Accounts Receivable Inventory Prepaid Expenses (incl. Deferred Income Tax) All Other Current Assets Current Assets (ex cash) Investments in Affiliates & Subsidiaries Goodwill (& Other Intangibles) Property, Plant & Equipment, net All Other Assets (incl. Deferred Income Taxes) Total Assets ST Debt & Current Maturities of LT Debt Accounts Payable Income Taxes Payable All Other Current Liabilities Current Liabilities (ex short-term debt) Long-Term Debt Deferred Income Taxes All Other Liabilities (Incl. Minority Interest) Total Liabilities (Incl. Minority Interest) Total Equity
book value per share
2003 $489 $1,495 $2,867 $93 $1,474 $5,929
2004 $432 $1,928 $2,636 $95 $1,577 $6,236
2005 $354 $1,702 $2,769 $102 $1,637 $6,210
2006 $365 $1,879 $3,684 $149 $2,316 $8,028
1Q07 2Q07 3Q07 4Q07 2007 1Q08 2Q08 3Q08E $485 $466 $845 $981 $981 $723 $1,100 $2,173 $2,490 $2,697 $2,541 $2,541 $3,056 $3,501 $3,910 $4,839 $5,622 $5,924 $5,924 $6,492 $8,792 $136 $136 $142 $219 $219 $271 $234 $2,415 $3,529 $4,454 $4,853 $4,853 $5,358 $5,881 $8,634 $10,994 $12,915 $13,537 $13,537 $15,177 $18,408
4Q08E
2008E 2009E 2010E $1,431 $1,948 $2,410 $3,587 $4,101 $4,381 $8,254 $9,402 $10,216 $171 $205 $231 $6,321 $7,381 $8,071 $18,333 $21,089 $22,899 $801 $801 $801 $409 $409 $409 $4,712 $4,712 $4,712 $2,232 $2,232 $2,232 $27,918 $31,191 $33,464 $2,019 $2,019 $2,019 $5,332 $6,606 $7,530 $274 $328 $369 $5,296 $6,356 $6,918 $10,901 $13,290 $14,817 $3,627 $3,627 $3,627 $149 $149 $149 $2,022 $2,022 $2,022 $18,718 $21,107 $22,634 $9,200 $10,084 $10,829
$66.70 $72.92 $78.31
$537 $564 $585 $649 $635 $665 $684 $706 $706 $800 $801 $448 $323 $308 $335 $339 $354 $363 $493 $493 $524 $409 $2,090 $2,536 $2,900 $3,446 $3,544 $3,739 $3,967 $4,216 $4,216 $4,339 $4,712 $599 $816 $1,089 $1,524 $1,749 $1,811 $2,052 $2,058 $2,058 $2,111 $2,232 $10,092 $10,907 $11,446 $14,347 $15,386 $18,029 $20,826 $21,991 $21,991 $23,674 $27,662 $1,337 $1,678 $42 $880 $2,600 $2,377 $206 $1,195 $7,715 $2,377
$23.12
$864 $1,898 $38 $1,102 $3,038 $2,600 $232 $798 $7,532 $3,375
$29.20
$719 $1,803 $38 $1,057 $2,898 $2,557 $145 $901 $7,220 $4,226
$34.98
$789 $2,328 $54 $1,344 $3,726 $2,874 $180 $1,110 $8,679 $5,668
$46.61
$737 $2,609 $54 $1,419 $4,082
$1,187 $2,984 $70 $2,360 $5,414
$1,892 $3,614 $118 $3,332 $7,064
$1,083 $4,061 $166 $3,524 $7,751
$1,083 $4,061 $166 $3,524 $7,751
$1,671 $2,019 $4,481 $5,503 $261 $143 $3,843 $4,624 $8,585 $10,270
$3,373 $3,670 $3,480 $3,435 $3,435 $3,322 $3,727 $188 $193 $178 $149 $149 $149 $149 $1,231 $1,417 $1,506 $1,628 $1,628 $1,664 $2,022 $9,611 $11,881 $14,120 $14,046 $14,046 $15,391 $18,187 $5,775
$47.48
$6,148
$47.48
$6,706
$51.79
$7,945
$59.07
$7,945
$60.76
$8,283
$60.19
$9,475
$68.76
Core Working Capital Change in Core Working Capital

as % of sales
$2,684 $2,684
12.1%
$2,666 -$18
10.6%
$2,668 $2
11.0%
$3,235 $567
12.3%
$3,474 $239
12.4%
$4,345 $1,110
14.3%
$4,705 $1,470
14.2%
$4,404 $1,169
8.1%
$4,404 $1,169
11.6%
$5,067 $663
11.8%
$6,790 $2,386
13.8%
$6,509 $2,105
10.4%
$6,897 $388
9.2%
$7,068 $171
8.4%
Total Debt Average Total Debt Net Interest Expense

implied interest rate interest coverage 7.0x
$3,714 $3,714 $113

3.0% 6.2x
$3,464 $3,589 $111

3.1% 9.3x
$3,276 $3,370 $127

3.8% 4.6x
$3,663 $3,470 $161

4.6% 3.7x
$4,110 $3,887 $39

4.0% 0.9x
$4,857 $4,484 $42

3.7% 5.5x
$5,372 $5,115 $58

4.5% 9.6x
$4,518 $4,945 $48

3.9% 9.6x
$4,518 $4,091 $187

4.6% 6.9x
$4,993 $4,756 $50

4.2% 9.3x
$5,746 $5,370 $36

2.7% 23.6x
$5,646 $5,082 $158

3.1% 16.5x
$5,646 $5,646 $272

4.8% 20.8x
$5,646 $5,646 $272

4.8% 21.0x
EBITDA/Net Interest Expense (8qtr) Total Debt/Capital Long Term Debt/Capital Net Debt/Capital Total Debt/Assets
8.6x
8.2x 61% 39% 53% 37%
9.5x 51% 38% 44% 32%
8.8x 44% 34% 39% 29%
6.2x 39% 31% 35% 26%
5.7x 42% 34% 37% 27%
5.8x 44% 33% 40% 27%
6.4x 44% 29% 37% 26%
7.4x 36% 28% 28% 21%
7.4x 36% 28% 28% 21%
8.2x 38% 25% 32% 21%
10.5x 38% 24% 31% 21%
13.7x 38% 24% 28% 20%
21.5x 36% 23% 24% 18%
24.0x 34% 22% 20% 17%
50
EQUITY RESEARCH
Figure 61: BG - Segment Sales and Operating Profit (excl. charges)

$ Million Sales, Volume & Price Per Unit Agribusiness Volumes (Million Met. Tons) Price Per Unit ($/MT) Fertilizer Volumes (Million Met. Tons) Price Per Unit ($/Million MT) Edible Oil Products Volumes (Million Met. Tons) Price Per Unit ($/Million MT) Milling Products Volumes (Million Met. Tons) Price Per Unit ($/Million MT) Net Sales Operating Profit (before other items) Agribusiness COGS (reported) Gross Profit (reported) SG&A (reported) Fertilizer COGS (reported) Gross Profit (reported) SG&A (reported) Edible Oil Products COGS (reported) Gross Profit (reported) SG&A (reported) Milling Products COGS (reported) Gross Profit (reported) SG&A (reported) Corporate Expense Operating Profit (ex charges) 2002 2003 2004 2005 2006 $10,483 $16,224 $17,990 $17,423 $19,065 69.6 86.9 89.1 97.6 97.8 $151 $187 $202 $179 $195 $1,384 $1,954 $2,581 $2,674 $2,602 10.7 11.5 11.6 11.5 11.6 $129 $169 $223 $233 $225 $1,279 $3,184 $3,793 $3,368 $3,642 1.9 4.1 4.7 4.3 4.7 $657 $777 $811 $789 $774 $628 $751 $804 $859 $965 3.3 3.5 4.0 3.9 3.9 $190 $217 $202 $221 $248 $13,882 $22,165 $25,168 $24,324 $26,274 2002 2003 2004 2005 2006 $499 $309 $515 $374 $317 $9,700 $15,619 $17,015 $16,596 $18,241 $783 $605 $975 $827 $824 $284 $332 $477 $457 $523 $193 $244 $404 $75 $120 $1,091 $1,581 $1,980 $2,333 $2,276 $293 $373 $601 $341 $326 $100 $129 $197 $229 $190 $17 $102 $74 $62 $83 $1,128 $2,900 $3,575 $3,090 $3,359 $151 $284 $218 $278 $283 $134 $180 $151 $214 $200 $26 $36 $46 $69 $73 $551 $670 $712 $734 $827 $77 $81 $92 $125 $138 $51 $43 $46 $56 $65 -$23 $736 -$111 $702 -$5 $1,034 $0 $580 $0 $593 Mar 1Q07 $5,344 25.1 $213 $613 2.5 $250 $1,125 1.3 $891 $261 0.9 $288 $7,343 1Q07 -$25 $5,234 $110 $135 $32 $533 $80 $48 $13 $1,048 $77 $64 $15 $228 $33 $18 Jun 2Q07 $5,926 30.0 $198 $795 3.0 $261 $1,267 1.4 $913 $310 1.0 $308 $8,298 2Q07 $124 $5,663 $263 $143 $88 $638 $157 $69 $7 $1,191 $76 $73 $14 $274 $36 $22 Sep Dec Mar Jun Sep Dec 3Q07 4Q07 2007 1Q08 2Q08 3Q08E 4Q08E 2008E $6,716 $9,004 $26,990 $8,863 $9,879 $11,280 $13,255 $43,277 31.2 28.1 114.4 26.7 30.9 31.8 28.4 117.8 $215 $320 $236 $332 $320 $355 $467 $367 $1,256 $1,254 $3,918 $1,191 $1,785 $2,392 $2,050 $7,418 4.0 3.5 13.1 2.7 3.0 4.2 3.7 13.6 $311 $353 $300 $447 $595 $561 $545 $544 $1,384 $1,821 $5,597 $1,929 $2,250 $2,592 $2,840 $9,611 1.4 1.5 5.5 1.4 1.4 1.4 1.5 5.7 $976 $1,246 $1,012 $1,387 $1,565 $1,810 $1,925 $1,675 $373 $393 $1,337 $486 $451 $578 $531 $2,047 1.1 1.0 4.0 1.0 1.0 1.1 1.0 4.1 $340 $404 $336 $489 $463 $517 $530 $501 $9,729 $12,472 $37,842 $12,469 $14,365 $16,843 $18,676 $62,353 3Q07 $366 $6,178 $538 $173 $163 $1,011 $245 $82 $6 $1,305 $79 $74 $21 $328 $45 $24 4Q07 2007 $311 $776 $8,508 $25,583 $496 $1,407 $210 $661 $122 $405 $1,097 $3,279 $157 $639 $85 $284 $26 $52 $1,719 $5,263 $102 $334 $105 $316 $0 $50 $372 $1,202 $21 $135 $34 $98 $0 $1,283 1Q08 $244 $8,399 $464 $220 $175 $941 $250 $75 $37 $1,812 $117 $80 $9 $450 $36 $27 2009E $52,154 118.1 $442 $9,029 14.6 $619 $11,401 5.9 $1,948 $2,253 4.3 $525 $74,838
2Q08 3Q08E 4Q08E 2008E 2009E $381 $472 $355 $1,452 $1,573 $9,134 $0 $0 $17,533 $0 $745 $0 $0 $1,209 $0 $247 $0 $0 $467 $0 $431 $220 $147 $973 $1,189 $1,264 $0 $0 $2,205 $0 $521 $0 $0 $771 $0 $90 $0 $0 $165 $0 -$5 $8 $29 $69 $120 $2,145 $0 $0 $3,957 $0 $105 $0 $0 $222 $0 $96 $0 $0 $176 $0 $42 $42 $26 $119 $116 $371 $0 $0 $821 $0 $80 $0 $0 $116 $0 $27 $0 $0 $54 $0 $0 $742 $0 $557 $0 $2,613 $0 $2,999
$35
$233
$556
$459
$465
$849
51
EQUITY RESEARCH
Figure 62: BG - Segment Sales Growth, Operating Margin, and Operating Profit Growth Metrics
Sales Growth Agribusiness Volumes (Million Met. Tons) Price Per Unit ($/MT) Fertilizer Volumes (Million Met. Tons) Price Per Unit ($/Million MT) Edible Oil Products Volumes (Million Met. Tons) Price Per Unit ($/Million MT) Milling Products Volumes (Million Met. Tons) Price Per Unit ($/Million MT) Net Sales Growth (%) Operating Margin (before other items) Agribusiness Gross Margin (before other items) Relative SG&A (before other items) Non-Operating Expense Fertilizer Gross Margin (before other items) Relative SG&A (before other items) Non-Operating Expense Edible Oil Products Gross Margin (before other items) Relative SG&A (before other items) Non-Operating Expense Milling Products Gross Margin (before other items) Relative SG&A (before other items) Non-Operating Expense Operating Margin (%) Profit Growth (before other items) Agribusiness COGS Gross Profit SG&A Fertilizer COGS Gross Profit SG&A Edible Oil Products COGS Gross Profit SG&A Milling Products COGS Gross Profit SG&A Profit Growth (%) Non-Operating Expenses Agribusiness FX Gain (Loss) Interest Income Interest Expense Fertilizer FX Gain (Loss) Interest Income Interest Expense Edible Oil Products FX Gain (Loss) Interest Income Interest Expense Milling Products FX Gain (Loss) Interest Income Interest Expense Segments Total FX Gain (Loss) Interest Income Interest Expense Total Segments Non-Operating Expense 2002 2003 55% 25% 24% 41% 8% 31% 149% 111% 18% 20% 5% 14% 60% 2003 1.9 3.7 2.0 0.0 12.5 19.1 6.6 0.0 3.2 8.9 5.7 0.0 4.8 10.8 5.7 0.0 3.2 2003 -38% 61% -23% 17% 26% 45% 27% 29% 500% 157% 88% 34% 38% 22% 5% -16% -5% 2003 2004 11% 3% 8% 32% 0% 32% 19% 14% 4% 7% 15% -7% 14% 2004 2.9 5.5 2.7 -0.6 15.7 23.3 7.6 -1.2 2.0 5.9 4.0 -0.6 5.7 11.4 5.7 -0.6 4.1 2004 67% 9% 64% 44% 66% 25% 61% 53% -27% 23% -21% -16% 28% 6% 14% 7% 47% 2004 -$107 -$17 $21 -$111 -$32 -$32 $50 -$50 -$21 $5 $6 -$32 -$5 $0 $3 -$8 -$165 -$44 $80 -$201 -$330 2005 -3% 9% -12% 4% -1% 5% -11% -9% -3% 7% -2% 10% -3% 2005 2.1 4.7 2.6 -0.5 2.8 11.4 8.6 -1.2 1.8 8.3 6.4 -1.0 8.0 14.6 6.5 -0.7 2.4 2005 -27% -2% -17% -5% -81% 20% -49% 17% -16% -13% 24% 43% 50% 3% 36% 22% -44% 2005 -$90 $29 $21 -$140 -$31 -$47 $57 -$41 -$32 $0 $3 -$35 -$6 -$1 $2 -$7 -$159 -$19 $83 -$223 -$318 2006 9% 0% 9% -3% 1% -4% 8% 10% -2% 12% 0% 12% 8% 2006 1.7 4.4 2.8 -1.0 4.6 12.5 7.9 2.5 2.3 7.8 5.5 -0.6 7.6 14.3 6.7 -0.4 2.3 1Q07 27% 16% 10% 46% 43% 2% 48% 16% 27% 12% -5% 18% 31% 1Q07 -0.5 2.1 2.5 -0.8 5.2 13.1 7.8 5.4 1.2 6.8 5.7 -0.5 5.7 12.6 6.9 -0.8 0.5 2Q07 32% 10% 20% 109% 63% 28% 44% 20% 20% 30% -1% 31% 38% 2Q07 2.1 4.5 2.4 -0.2 11.1 19.7 8.7 6.8 0.6 6.3 5.8 -0.6 4.5 11.6 7.1 -0.6 2.8 2Q07 300% 30% 77% 19% -980% 85% 324% 47% -63% 45% 21% 55% -22% 34% 6% 38% 302% 2Q07 -$13 $47 $7 -$67 $54 $40 $17 -$3 -$7 $1 $0 -$8 -$2 -$1 $0 -$1 $32 $87 $24 -$79 $64 3Q07 39% 19% 16% 42% -1% 44% 38% 12% 23% 54% 10% 40% 40% 3Q07 5.4 8.0 2.6 -0.7 13.0 19.5 6.5 3.5 0.4 5.8 5.3 -0.4 5.6 12.1 6.4 -0.3 5.7 3Q07 224% 35% 109% 19% 163% 31% 115% 58% -82% 42% -1% 54% 31% 56% 41% 50% 148% 3Q07 -$46 $35 $9 -$90 $44 $31 $17 -$4 -$5 $1 $1 -$7 -$1 $0 $0 -$1 -$8 $67 $27 -$102 -$16 4Q07 63% 24% 32% 37% -10% 51% 82% 22% 49% 57% 4% 50% 62% 4Q07 3.5 5.8 2.3 -0.2 9.7 12.5 2.8 2.5 1.4 6.6 5.2 -0.5 0.0 8.7 8.7 -0.3 3.7 4Q07 151% 62% 86% 35% 74% 38% 26% -36% 86% 83% 74% 71% -100% 70% -15% 89% 100% 4Q07 -$22 $48 $15 -$85 $31 $17 $16 -$2 -$10 $3 $2 -$15 -$1 -$1 $0 $0 -$2 $67 $33 -$102 -$4 2007 42% 17% 21% 51% 13% 33% 54% 17% 31% 39% 2% 35% 44% 2007 2.9 5.3 2.4 -0.5 10.3 16.3 6.0 4.1 0.9 6.4 5.4 -0.5 3.7 11.1 7.3 -0.4 3.4 1Q08 66% 6% 56% 94% 9% 79% 71% 10% 56% 86% 10% 70% 70% 1Q08 2.8 5.2 2.5 -0.7 14.7 21.0 6.3 2.4 1.9 6.1 4.1 -0.3 1.9 7.4 5.6 -1.6 3.7 2Q08 3Q08E 4Q08E 2008E 2009E 67% 68% 47% 60% 21% 3% 62% 125% 90% 63% 89% 22% -1% 128% 78% 87% 56% 72% 19% 4% 71% 45% 55% 35% 53% 10% -3% 51% 73% 73% 50% 65% 20% 2Q08 3Q08E 4Q08E 2008E 2009E 3.9 4.2 2.7 3.4 3.0 6.4 2.5 1.2 24.1 9.2 7.2 13.1 13.2 29.2 5.0 6.5 -0.2 0.3 1.0 0.7 1.1 4.7 4.9 -0.8 9.3 7.3 4.9 5.8 5.1 15.3 6.0 -0.2 5.9 4.4 3.0 4.2 4.0 2Q08 3Q08E 4Q08E 2008E 2009E 207% 29% 14% 87% 8% 63% 135% 73% 390% 35% 21% 140% 22% 98% 232% 30% -171% 27% 13% 33% 75% 81% 31% 51% 200% 101% #DIV/0! 139% -3% 39% 92% 23% 264% 33% 21% 104% 15% 2Q08 3Q08E $118 $165 $15 -$62 $116 $92 $30 -$6 -$18 $1 $1 -$20 -$1 $0 $0 -$1 $215 $258 $46 -$89 $430 4Q08E 2008E 2009E
2002 4.8 7.5 2.7 0.0 13.9 21.2 7.2 0.0 1.3 11.8 10.5 0.0 4.1 12.3 8.1 0.0 5.3 2002
2006 1Q07 -15% -151% 10% 29% 2% -29% 17% 27% 60% -1700% -4% 44% 7% 60% -11% -8% 34% -24% 9% 52% 3% 12% -6% 23% 6% -12% 13% 13% 10% 3% 16% 20% 2% -57% 2006 -$189 -$12 $27 -$204 $66 $47 $58 -$39 -$23 $5 $2 -$30 -$4 $0 $3 -$7 -$150 $40 $90 -$280 -$300 1Q07 -$41 $6 $7 -$54 $33 $26 $14 -$7 -$6 $1 $1 -$8 -$2 -$2 $1 -$1 -$16 $31 $23 -$70 -$32
2007 1Q08 145% -1076% 40% 60% 70% 322% 25% 63% 238% 447% 44% 77% 96% 213% 14% 56% -37% 185% 56% 73% 25% 52% 51% 25% -32% -40% 44% 97% 7% 9% 51% 50% 116% 1229% 2007 -$122 $136 $38 -$296 $162 $114 $64 -$16 -$28 $6 $4 -$38 -$6 -$4 $1 -$3 $6 $252 $107 -$353 $12 1Q08 -$66 -$6 $16 -$76 $28 $9 $22 -$3 -$5 $4 $1 -$10 -$8 $0 $1 -$9 -$51 $7 $40 -$98 -$102
2002
52
EQUITY RESEARCH
Analyst Certification: I, Christopher M. Bledsoe, hereby certify (1) that the views expressed in this research Company Note accurately reflect my personal views about any or all of the subject securities or issuers referred to in this Company Note and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this Company Note.
Company Description: Founded in 1818, Bunge Limited is headquartered in White Plains, New York, and employs roughly 22,000 individuals at over 450 facilities in 32 countries. BG is a leading agribusiness processor and fertilizer manufacturer with integrated global operations. The company's operations add value by converting raw agricultural commodities into consumable form and connecting participants throughout the supply chain, from farmer to consumer. BG's worldwide asset footprint, including company-owned mines, grain elevators, storage facilities, river barges and ocean going vessels, is utilized to extract/blend fertilizers, procure and process oilseeds and grains, and distribute agricultural products for consumption as food, feed, or to a lesser extent, bio-fuels.
53
EQUITY RESEARCH
Important Disclosures: Bunge Limited (BG)

Rating and Price Target Chart:
CHART IS NOT APPLICABLE
US$ 90.85 (12-Aug-2008)
3-Underweight / 1-Positive
Lehman Brothers Inc and/or an affiliate trade regularly in the shares of Bunge Limited. Lehman Brothers Inc. has received non-investment banking related compensation from Bunge Limited within the last 12 months. Bunge Limited is or during the last 12 months has been a non-investment banking client (securities related services) of Lehman Brothers Inc. Valuation Methodology: Our $97 price target is predicated on a multiple of 14.5x our mid-cycle EPS estimate of $6.69 -- a 35% premium to BG's historical mid-cycle multiple of 10.8x to primarily account for a number of potential points of insulation (geographic and end-product diversification) that could help sustain BG's earnings at levels markedly above what we'd consider "normalized." Risks Which May Impede the Achievement of the Price Target: Key risks to our rating include continued strength in global demand trends for BG's food, feed and fertilizer products, including a reversal in BRL strength which would enhance the competitive position of BG's brazilian-based agricultural products.
54
EQUITY RESEARCH
Important Disclosures Continued: Archer-Daniels-Midland Co. (ADM)

Rating and Price Target Chart:
CHART IS NOT APPLICABLE
US$ 26.49 (08-Aug-2008)
3-Underweight / 1-Positive
Lehman Brothers Inc and/or an affiliate trade regularly in the shares of Archer-Daniels-Midland Co.. Lehman Brothers Inc. has received non-investment banking related compensation from Archer-Daniels-Midland Co. within the last 12 months. Archer-Daniels-Midland Co. is or during the last 12 months has been a non-investment banking client (securities related services) of Lehman Brothers Inc. Risks Which May Impede the Achievement of the Price Target: Key risks to our rating include continued strength in global demand trends for ADM's food, feed and fuel products, a continued benefit from a weak US Dollar, continued beneficial dislocations in export markets, consolidation in bio-fuel processing capacity, and increased government support and protection of corn-based bio-fuels.
55
EQUITY RESEARCH
Important Disclosures Continued: The analysts responsible for preparing this report have received compensation based upon various factors including the firm's total revenues, a portion of which is generated by investment banking activities
Company Name Bunge Limited Mentioned Company Archer-Daniels-Midland Co.
Ticker BG Ticker ADM
Price US$ 90.85 Price US$ 26.49
Price Date 12-Aug-2008 Price Date 08 Aug 2008
Stock / Sector Rating 3-Underweight / 1-Positive Stock / Sector Rating 3-Underweight / 1-Positive
Guide to Lehman Brothers Equity Research Rating System: Our coverage analysts use a relative rating system in which they rate stocks as 1-Overweight, 2-Equal weight or 3-Underweight (see definitions below) relative to other companies covered by the analyst or a team of analysts that are deemed to be in the same industry sector (the sector coverage universe). Not applicable.
In addition to the stock rating, we provide sector views which rate the outlook for the sector coverage universe as 1-Positive, 2-Neutral or 3Negative (see definitions below). A rating system using terms such as buy, hold and sell is not the equivalent of our rating system. Investors should carefully read the entire research report including the definitions of all ratings and not infer its contents from ratings alone. Stock Rating 1-Overweight - The stock is expected to outperform the unweighted expected total return of the sector coverage universe over a 12-month investment horizon. 2-Equal weight - The stock is expected to perform in line with the unweighted expected total return of the sector coverage universe over a 12- month investment horizon. 3-Underweight - The stock is expected to underperform the unweighted expected total return of the sector coverage universe over a 12month investment horizon. RS-Rating Suspended - The rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Lehman Brothers is acting in an advisory capacity in a merger or strategic transaction involving the company. Sector View 1-Positive - sector coverage universe fundamentals/valuations are improving. 2-Neutral - sector coverage universe fundamentals/valuations are steady, neither improving nor deteriorating. 3-Negative - sector coverage universe fundamentals/valuations are deteriorating. Distribution of Ratings: Lehman Brothers Equity Research has 2082 companies under coverage. 45% have been assigned a 1-Overweight rating which, for purposes of mandatory regulatory disclosures, is classified as Buy rating, 34% of companies with this rating are investment banking clients of the Firm. 39% have been assigned a 2-Equal weight rating which, for purposes of mandatory regulatory disclosures, is classified as Hold rating, 34% of companies with this rating are investment banking clients of the Firm. 13% have been assigned a 3-Underweight rating which, for purposes of mandatory regulatory disclosures, is classified as Sell rating, 23% of companies with this rating are investment banking clients of the Firm.
Lehman Brothers Inc. and Its Foreign Affiliates Involved in the Production of Equity Research New York London Lehman Brothers Inc. (LBI, New York) Lehman Brothers International (Europe) 745 Seventh Avenue (LBIE, London) New York , NY 10019 25 Bank Street Member, FINRA London, E14 5LE, United Kingdom Regulated by FSA Mumbai Lehman Brothers Inc., India Branch (LBI, India) Winchester, Off High Street, 9th Floor Hiranandani Business Park, Powai, Mumbai 400 076, India Seoul Lehman Brothers International (Europe) Seoul Branch (LBIE, Seoul) Hanwha Building, 12th Floor 110, Sokong-dong Chung-Ku Seoul 100-755, Korea
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56
EQUITY RESEARCH
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This material has been prepared and/or issued by Lehman Brothers Inc., member SIPC, and/or one of its affiliates (Lehman Brothers) and has been approved by Lehman Brothers International (Europe), authorized and regulated by the Financial Services Authority, in connection with its distribution in the European Economic Area. This material is distributed in Japan by Lehman Brothers Japan Inc., and in Hong Kong by Lehman Brothers Asia Limited. This material is distributed in Australia by Lehman Brothers Australia Limited, and in Singapore by Lehman Brothers Singapore Pte Ltd. Where this material is distributed by Lehman Brothers Singapore Pte Ltd, please note that it is intended for general circulation only and the recommendations contained herein does not take into account the specific investment objectives, financial situation or particular needs of any particular person. An investor should consult his Lehman Brothers representative regarding the suitability of the product and take into account his specific investment objectives, financial situation or particular needs before he makes a commitment to purchase the investment product. This material is distributed in Korea by Lehman Brothers International (Europe) Seoul Branch, and in Taiwan by Lehman Brothers Securities Taiwan Limited. Where this material is distributed by Lehman Brothers Securities Taiwan Limited, please note that recommendations expressed herein are for reference only. Investors should carefully evaluate the investment risks and are reminded that they are solely responsible for their investment decisions. This document is for information purposes only and it should not be regarded as an offer to sell or as a solicitation of an offer to buy the securities or other instruments mentioned in it. No part of this document may be reproduced in any manner without the written permission of Lehman Brothers. With the exception of disclosures relating to Lehman Brothers, this research report is based on current public information that Lehman Brothers considers reliable, but we make no representation that it is accurate or complete, and it should not be relied on as such. In the case of any disclosure to the effect that Lehman Brothers Inc. or its affiliates beneficially own 1% or more of any class of common equity securities of the subject company, the computation of beneficial ownership of securities is based upon the methodology used to compute ownership under Section 13(d) of the United States' Securities Exchange Act of 1934. In the case of any disclosure to the effect that Lehman Brothers Inc. and/or its affiliates hold a short position of at least 1% of the outstanding share capital of a particular company, such disclosure relates solely to the ordinary share capital of the company. Accordingly, while such calculation represents Lehman Brothers holdings net of any long position in the ordinary share capital of the company, such calculation excludes any rights or obligations that Lehman Brothers may otherwise have, or which may accrue in the future, with respect to such ordinary share capital. Similarly such calculation does not include any shares held or owned by Lehman Brothers where such shares are held under a wider agreement or arrangement (be it with a client or a counterparty) concerning the shares of such company (e.g. prime broking and/or stock lending activity). Any such disclosure represents the position of Lehman Brothers as of the last business day of the calendar month preceding the date of this report. This material is provided with the understanding that Lehman Brothers is not acting in a fiduciary capacity. Opinions expressed herein reflect the opinion of Lehman Brothers and are subject to change without notice. The products mentioned in this document may not be eligible for sale in some states or countries, and they may not be suitable for all types of investors. If an investor has any doubts about product suitability, he should consult his Lehman Brothers representative. The value of and the income produced by products may fluctuate, so that an investor may get back less than he invested. Value and income may be adversely affected by exchange rates, interest rates, or other factors. Past performance is not necessarily indicative of future results. If a product is income producing, part of the capital invested may be used to pay that income. 2008 Lehman Brothers. All rights reserved. Additional information is available on request. Please contact a Lehman Brothers entity in your home jurisdiction. Lehman Brothers policy for managing conflicts of interest in connection with investment research is available at www.lehman.com/researchconflictspolicy. Complete disclosure information regarding companies covered by Lehman Brothers Equity Research, including ratings, earnings per share forecasts and price targets contained in reports covering U.S. companies is available at www.lehman.com/disclosures.
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EQUITY RESEARCH

August 13, 2008

Bunge Limited (BG - US$ 90.85) 3-Underweight

United States of America Consumer Agribusiness Processors

EPS (US$) (FY Dec)

Sector View: 1-Positive

Bunge Limited (BG - $90.85; 3-Underweight)

Furthermore, the recent pullback in mid-cycle

filling this void.

In addition, higher grain and oilseed prices

Still, the combination of the acquisitions price tag (a

In our view, aside from BGs geographic

BG Potential 09 Macro Headwinds, but Better Insulated than Some

Source: Company filings and Lehman Brothers estimates

Diversified Model Exposes BG to Potential NT Macro Headwinds

Prices: Higher Corn / Lower Soybean

less corn supply, more soybean supply

Less Fertilizer Used in Spring '08 Implications for S. America:

Excess Precipitation Late Start to Plantings

Limited Farmer Access to Fields Volume: Rotation from Corn to Soybean

Demand shift to South America Floods after Emergence

Reliance on SA soybeans/corn increase

Difficult YoY Comparison Difficult YoY Comparison

Inflation Grain Inflation

Watchpoint Fed Tightening Cycle (USD Strengthening)

S. America Capacity Expansion Global** Watchpoint Processor Competition

asset expansion = step-function capacity increases

Source: Lehman Brothers analysis

Figure 3: BG Estimated Exposure to North American Feed Operations

Figure: BG - Processing Capacity

Figure: BG - NA Feed Exposure

All Other, 76%

All Other, 89%

Source: Lehman Brothers estimates

Chicken Beef Pork Combined

Reduction in M Lbs. -938 -813 -2,183 -3,934

Feed Conv. Ratio 2.7 12.9 4.6 5.9

Chicken Beef Pork Combined

Bushels/Acre** Corn Soy 151 41 151 41 151 41 151 41

Source: Lehman Brothers analysis

Figure 5: Eggs Set - 10-Week Forward-Looking Chicken Supply Data

Source: USDA National Agricultural Statistics Service

Source: USDA National Agricultural Statistics Service

Source: USDA National Agricultural Statistics Service

Developing Market Food Consumption:

BG is more closely linked

Source: Bunge Limited presentation (June 2008)

Figure 9: Worldwide Rainfall

Figure 10: Global Dietary Shift

On this score, we note that several BRIC

0.6% 0.4% 0.2%

0.0% Brazil Russia India China

0.0% Brazil Russia India China

Source: USDA (Economic Research Service) and Lehman Brothers analysis

Not a Direct Price Driver for Ethanol

Soybean Bio-Diesel Crushing: Fertilizer: N/A

Poultry & N/A Livestock

Poultry & N/A Livestock

Source: Lehman Brothers analysis

environment among processors competing for fewer contracts.

Not a Direct Price Driver for Ethanol

Soybean Bio-Diesel Crushing: Fertilizer: N/A

Poultry & N/A Livestock

Soybean N/A Crushing: Fertilizer: NPK Blends