The Rude Awakening
Wall Street, New York
Friday, December 16, 2005 ------------------------- - The company a billion Chinese are literally eating
up,
- What is fuelling this three-way love-fest?
- The secret to traveling the globe the 'untourist' way
and more, more, more…
------------------------- [Joel's Note: We are about to dart off to the annual
company meeting, the gateway to the Christmas party
tonight, so we'll keep this one short. Below, Eric takes a
look at the company mutually adored by Dan Denning, Jim
Grant and himself. What is so special about this little
gem? What does China's insatiable appetite have to do with
it? Read on and find out…then email any bothers, comments
of painful Christmas party memories to your fog-headed
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By Eric J. Fry Dan Denning likes Bunge Ltd., the largest oilseed processor
in the world. So does James Grant…and so do we. Yet,
despite this three-way love-fest for Bunge (NYSE: BG), the
stock has gone nowhere for more than a year. For all we
know, the stock will go nowhere in 2006. But it does not
lack for reasons to go up. "Bunge is a vast, globally integrated middleman between
farmers and eaters," Grant explained in a mid-summer issue
of Grant's Interest Rate Observer. "The eaters to whom it
increasingly caters are the billion or so Chinese who
aspire to diets richer in chicken. The commodity in which
the company mainly deals is soybeans, which - when crushed
into meal - make chicken feed." Soybean meal represents reason #1 why Bunge's fortunes
might soon improve. "Meal" prices have jumped 20% over the
last few weeks, thereby breaking out of a months-long funk.
Although Bunge does not derive much direct benefit from
rising soybean and meal prices, rising prices do help
animate all of the other activities from which it earns a
buck. 
"Bunge is a combination resources company, distribution
company and brokerage house," Grant explained. "The
resources business grows and processes commodities, mainly
soybeans; the distribution business hauls the beans
(however processed or reconstituted) by training, truck and
ship; and brokerage business implements hedging strategies.
Among the edible offerings on Bunge's agricultural buffet
table are vegetable oil, margarine and mayonnaise. And none
of this output is easily confused with Godiva
chocolates…" Happily so…Godiva chocolates are loaded with "trans fat,"
the dietary bad-boy-du-jour. Soybean oil is not. Within
this bit of dietetic trivia resides another reason to like
Bunge shares, as Dan Denning explains to the subscribers of
Strategic Investments: "Starting next year, major food manufacturers will be
required to label 'hydrogenated' or 'partially
hydrogenated' ingredients in food in more simple language:
trans fat.
"Trans fat is, in a word, lethal. The main benefit of trans
fat, if you're a food producer, is that it adds shelf-life
to your products. By adding hydrogen to the chemical
composition of fat, hence 'hydrogenation,' you change the
chemical composition of fat. You make it thicker and less
soluble, preserving the food.
"The downside, if you're a consumer of trans fat, is that
it increases the amount of 'bad' cholesterol in your system
(LDL, or low-density lipoprotein) while decreasing the
amount of 'good' cholesterol (HDL, or high-density
lipoprotein, which helps remove cholesterol from your
arteries.)
"In other words, trans fat increases your chances of
coronary heart disease. In fact, some studies show that NO
level of trans fat is safe in the diet and that trans fat
eaters are twice as likely to have a heart attack as non-
trans fat-eaters. That is one reason so many countries are
moving to either identify trans fat more prominently on
food labels, or in some countries, ban it all together
(Denmark).
"The food industry sees the intolerant writing on the
regulatory wall and is moving to replace trans fat
with…soy oils. Kellog's announced its intention to
eliminate trans fat by using a genetically modified soybean
oil from Monsanto under the name of Vistive. But Vistive
has a competitor called Nutrium which is produced by Dupont
(DD) and our friends at Bunge (BG).
"The problem is, there isn't enough Nutrium or Vistive on
the market yet to make it possible for Kellog's to
completely switch over from trans fat to soyoil. The
benefits are obvious. As Bunge explained when it launched
the new product:
'Nutrium oil has a low linolenic acid profile of less than
three percent, offering better natural oil stability and
increased shelf life. When used in frying, low linolenic
oil eliminates the need for partial hydrogenation. The
industry has been looking for alternative oils because the
U.S. Food and Drug Administration will require the
inclusion of trans fats on food nutrition labels in 2006.
By the end of the decade, Bunge expects to approach full-
scale commercial availability at nearly one billion pounds
of low lin oil for the food industry.'
"The end of the decade is a long time to wait for 'full-
scale commercial availability.' But physics is physics.
According to the United Soybean Board, there are about 1m
acres of low-linolenic soyabeans planted in the US. Total
soyabean acreage is 7 million. "It will be awhile before farmers plant enough of variety
of soybean Bunge needs to ramp up commercial production.
And that's fine too. Bunge operates in four segments-
agribusiness, fertilizer, edible oil, and milling products.
It's agribusiness and fertilizer segments are currently the
largest drivers of revenue and profits. "In ten years, it could be edible oil products, led by
nutrium. That's one reason why if you're going to buy only
a handful of stocks for the next years and hold them, this
would be one of them." Jim Grant agrees…and so do we. [Joel's Note: Even if you prefer the high-risk taste of
Godiva chocolate to soybeans, you can still enjoy the low
trans fat profits of Kevin Kerr's Resource Trader Alert.
Kevin trades everything from gold to crude to soybeans,
making his readers tidy sums along the way. You can learn
more about the 'Maniac Trader' by looking here: The Maniac Trader
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