The U.S. Department of Agriculture surprised the grain market last week with a forecast that the U.S. soy crop will total just 2.643 billion bushels (71.9 million tonnes) this year, the smallest harvest in seven years.

The estimate was down 8 percent from the USDA's forecast a month earlier, when all indications were that the United States - the world's top soybean producer and exporter - would harvest a bumper soy crop after the drought of 2002.

"After initial market expectations of a record North American crop, the USDA forecast that soybeans will be in short supply," Bunge Chief Financial Officer Bill Wells said.

"This will create corresponding pressure on soy crush margins in North America and Europe," he said in a statement.

Europe is one of the top export destinations of U.S. soybeans and soymeal animal feed. Several large American grain companies have a significant presence there.

Bunge's businesses stretch across grains and fertilizers to producing cooking oil and other food products such as chocolate syrup and hot fudge toppings for ice cream.

Analyst Leonard Teitelbaum of Merrill Lynch reduced his third-quarter and full-year profit estimates for Bunge. But he did not alter his 2004 estimate, citing in a research note "the assumption that South America could indeed be stronger next year and thus bolster earnings."

Brazil and Argentina, the world's No. 2 and No. 3 soy producers and exporters, are widely expected to keep their combined soybean output growing at a rapid pace. Brazil is seen producing more soy than the United States in three years.

John McMillin of Prudential Financial wondered if Bunge's lower earnings guidance was linked to factors other than just the smaller U.S. crop, such as currency factors and hedging commodities.

McMillin said Bunge's 2002 earnings were boosted by about 40 cents a share owing to currency gains. "Now that these currencies have stabilized, we see a reverse effect happened, which can hurt earnings," he said.

"We think this may have played a bigger role than (Bunge) has otherwise indicated," he said. "Furthermore, we believe (Bunge) may have made some mistakes in hedging their commodities, which also may contribute to lower third-quarter guidance."

Bunge's 2002 earnings were bolstered by steep declines in the value of the currencies of Brazil and Argentina, two key bases of its operations, which helped the company reduce its costs there while reaping the gains of its exports being priced in U.S. dollars.

White Plains, New York-based Bunge reduced its projected third-quarter net income to a range of $75 million to $80 million, or 75 cents to 80 cents per share, from its previous estimate of $90 million to $95 million, or 90 cents to 95 cents.

It cut its full-year profit forecast to a range of $360 million to $370 million, or $3.61 to $3.71 per share, down from $380 million to $390 million, or $3.81 to $3.91 per share.

The company earned 96 cents a share in the 2002 third quarter and $2.90 a share for all of 2002, according to Thomson First Call.

Merrill Lynch's Teitelbaum reduced his third-quarter estimate to 76 cents per share from 92 cents, and dropped his full-year forecast to $2.55 per share from $2.78. His 2004 estimate remains $3 per share.

Bunge shares fell as low as $27 on the company's new forecasts but ended the day down $2.74, or 9.1 percent, at $27.37 on the New York Stock Exchange. (Additional reporting by Brad Dorfman)