CHICAGO (Reuters) ? Oilseed processor and fertiliser producer Bunge Ltd. yesterday reported better-than-expected quarterly earnings, which fell one percent, and said demand for biofuels will boost results in 2007, sending its shares up as much as 3.5 percent.

Bunge has faced problems due to a farming crisis in Brazil but as the Brazilian real has stabilised, the company said prices for agricultural commodities have improved. The company maintained its forecast for net income for the year of $3.50 to $3.67 per share.

The world's largest oilseed processor said third-quarter earnings fell to $169 million, or $1.40 per share, compared with $170 million, or $1.41 per share, a year earlier.

Excluding special items and a litigation settlement but including stock-based compensation charges, Bunge's earnings were $1.54 per share, beating analysts estimates of $1.41 a share, according to Reuters Estimates.

Revenue rose 11 percent to $6.97 billion, exceeding the analyst consensus of $6.56 billion. Volume, a measure that excludes currency and price fluctuations, rose three percent to 30.8 million tonnes.

Bunge, based in White Plains, New York, expects demand for biofuels to help future earnings.

Biofuels include ethanol made from corn or sugarcane and biodiesel made from soybeans and rapeseed. Companies are scrambling to build new plants to meet growing demand for these products in response to high oil prices, government mandates and the phase-out of the water-polluting additive MTBE.

Bunge's share of biofuel production from its joint ventures is now 50 million gallons a year and will rise to 300 million gallons during the next two years. In addition, total biofuel production from the joint ventures will exceed 1 billion gallons, with Bunge supplying most of the raw materials.

Operating profit from the agribusiness unit, the company's largest, rose seven percent, helped by higher processing margins in Argentina and the earlier closure of five oilseed processing plants in Brazil.

Operating profit in fertilisers rose 12 percent in the quarter, but volume fell one percent. Bunge expects fertiliser sales in Brazil, one of its largest markets, to fall this year and warned the business is improving more slowly than expected.

Operating profit from edible oils rose 225 percent, although volume increased by only 5 percent.

Bunge shares have underperformed the food processing sector this year, rising 3 percent compared with a gain of 16 percent in the Dow Jones US Food Producers Index.

Bunge shares were up $1.45 to $60.31 in morning trading on the New York Stock Exchange, after touching $60.91 earlier in the session.