Q1 2021 Bunge Ltd Earnings Call
Good morning, and welcome to the Bunk and Ltd first quarter 2021 earnings release and conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, and there will be and opportunity to ask questions. Please note. This event is being recorded.
And I'd like to turn the conference over to Ruth and Weitzner. Please go ahead.
Thank you Jason and thank you for joining us this morning for our force.
First quarter earnings call when we get started and I want to let you know.
Now that we have slides to accompany our discussion. These can be found and the investors section of our website at bunge dot com under events and presentations.
Conciliation of non-GAAP measures to the most directly comparable GAAP financial measure are posted on our website as well I'd like to direct you to slide two and remind you that today's presentation includes forward looking statements that reflect <unk> current view with respect to future events and financial performance and industry conditions. These forward looking.
Statements are subject to various risks and uncertainties bunge.
He has provided additional information and its reports on file with the SEC and start.
Factors that could cause actual results to differ materially from those contained in this presentation and we encourage you to review. These factors on the call. This morning are Greg Heckman logging and Chief Executive Officer, and John Neville, Chief Financial Officer, I'll now turn the call over to Greg.
Thank you Ruth Ann and good morning, everyone.
Turning to slide three you'll see the agenda for today's call.
I'll start with some highlights from the first quarter before handing over to John who will go into more detail on our performance.
I'll then share some closing thoughts and how we're thinking about the remainder of the year before opening the line for your questions.
Let's start with an overview and the quarter turning to slide four.
Thanks to the outstanding execution by our global team working seamlessly across our value chains, we're off to a great start for 2021.
We brought positive momentum and ended the quarter and we continue to capture the opportunities in front of us delivering our sixth consecutive quarter of increased earnings.
Operationally our team did a fantastic job maximizing our assets.
And we reached a new high watermark for crush capacity utilization and we continue to reduce unplanned downtime.
We also executed well and the marketplace through outstanding customer service innovation agility and partnership.
Our strong results over the past few quarters, reflecting growth reflect the value of working as a unified global company and the benefits of our integrated model delivers to our customers on both ends and the value chain from farmers to customers to consumers.
We're committed to continuous improvement and managing risk effectively because while we're incredibly proud of what we've achieved we recognize there's always more we can do especially in an industry that doesn't always offer a straight line path from quarter to quarter the.
The dramatic swings and consumer and customer behavior during the COVID-19 pandemic, our case and point.
COVID-19 is still very much a factor in most parts of the world, especially in Brazil, and India, and our thoughts and with all of those who are still in the center of a battle with this pandemic.
And regions, where restrictions are easing, we're seeing increased demand and pricing across the range of products as people begin to get back to regular line patterns.
And regardless of those more encouraging trends our top priority continues to be the safety of our team and their families and communities.
Turning now to our segment performance as.
And as you saw last week, we changed our reporting to better align with our new value chain operating structure.
And we'll go into more detail on that later in the call, but our new segments more closely reflect the way we manage our business.
And the first quarter, we delivered especially strong results and agribusiness.
Earnings were driven primarily by oilseed processing, particularly and sources and our merchandising value chains.
Refined and specialty orders oil had a record quarter benefiting from tightening global supplies improved demand, particularly in North America, and our continued focus on customers and innovation.
And before handing the call over to John you'll note that with our strong first quarter results and favorable outlook across a number of our markets. We raised our full year adjusted EPS forecast to approximately $7 50.
And I'll share some additional thoughts and the remainder of 2021 and before opening the call for Q&A.
And Additionally, we announced this morning that our board of directors approved a 5% increase to our quarterly common dividend, reflecting our positive momentum and favorable market trends.
I'll now turn the call over to Jon to walk through our financial results and more detail.
Thanks, Greg and good morning, everyone.
You may have seen our announcement last week that we have changed our segment reporting to align with our new value chain model and to reflect how we manage the business and review financial information.
With and agribusiness, we've realigned grains, and oilseeds operations, and the processing and merchandise and food.
Advisor segment has been eliminated with those results are now included in the processing component of agribusiness.
Processing in addition to fertilizer because principally the oilseeds operations plus the soy and soft seed crush related origination activities previously included a grades.
You can try and find additional details and note two of our earnings press release and in the appendix of the slide presentation.
Let's turn and the earnings earnings highlights on slide five.
Our reported first quarter earnings per share was $5 52.
Compared to a loss of $1 46, and the first quarter 2020.
Our reported results include a net gain of $1 nine related to the previously announced sales of our Rotterdam oil refinery as well as a packaging plant in Mexico.
Reported results also include a mark to market timing difference of $1 30 per share.
Adjusted EPS was $3 13, and the quarter versus 91 from the prior year.
Adjusted core segment earnings before interest and taxes, or EBIT was $737 million and the quarter versus $354 million and the prior year drew.
Driven by strong performances, and our agribusiness and refine especially well segments.
And as Greg noted agribusiness results and the quarter reflect outstanding execution by the team managing our crush capacity and trade flows.
And processing improved performance and the quarter was driven by higher results and all soft seed and soy crush value change, which included an increased contribution from U S soybean and origination.
In addition.
We achieved.
Record Q1, soy and rape seed crush volume and capacity utilization, reflecting reduced unplanned downtime and excellent coordination between our commercial and industrial teams.
This improved crush output brings immediate financial benefits, especially periods of strong margins like we have been experiencing.
And merchandising and improved volumes and margins and our global oil and corn and and we value chains were primarily driven by increased export demand and strong grain origination and North America, and Australia and outstanding execution on logistics and risk management.
Results from our financial services business were also higher.
And refined and specialty oils and the strong performance reflected higher results in all regions driven by improved execution as well as favorable market trends.
Margins in North America refining benefited from early stage recovery and foodservice and an increased demand from the renewable diesel sector.
Higher margins, and South America, and Europe more than offset slower volumes.
Asia benefited from strong demand and India prior to and reposition of restrictions due to the surge of new COVID-19 cases.
Sure.
And milling results were down in both North and South America, primarily due to lower margins. Additionally volumes in Brazil were negatively impacted by the resurgence in COVID-19 cases.
The increase and corporate expenses during the quarter was primarily related to the performance based compensation accruals, a portion of which was not allocated operating segments.
The decrease and other was related to our captive insurance program.
Results for our sugar and bioenergy joint venture and benefited from higher sugar and ethanol volume and higher sugar prices in local currency.
Prior year results reflect less favorable environment and were also negatively impacted by approximately $25 million and FX translation losses of the joint venture due to depreciation of Brazilian real.
For the quarter income tax expense was 192 million as compared to an income tax benefit of $55 million from the prior year.
The increase in income tax expense was due to higher pre tax income.
Adjusted for notable items, the effective tax rate for the quarter was 21%.
Net interest expense of $64 million was in line with our expectations.
Let's turn to slide six.
Here you can see a positive earnings trends adjusted for notable items and timing differences over the past four years, along with the most recent trailing 12 months period.
This improved performance not only reflects the strong operating environment, but also a hard work of our global teams and the benefits of our new operating model that brings organizational alignment across the regions and importantly has shifted our culture to one of continuous improvement and capital discipline.
Slide seven compares our first quarter SG&A in the prior year.
We achieved underlying addressable SG&A savings of $16 million.
Of which approximately 80% was related to indirect costs.
And related restrictions continued to impact areas, such as travel, but we also realized lower employee and professional services costs.
Moving to slide eight.
The most recent trailing 12 months period or cash generation, excluding notable items and mark to market timing differences were strong and approximately $2 $2 billion of adjusted funds from operations.
This cash flow generation enabled us to comfortably fund and our cash obligations over the past year and retained approximately $1 $4 billion to strengthen our balance sheet and support of our credit rating objective and triple B <unk>.
On slide nine details our capital allocation of adjusted funds from operations for the first quarter.
After allocating $32 million of sustaining Capex, which includes maintenance environmental health and safety and $8 million to preferred dividends, and we had $493 million and discretionary cash flow available.
Of this amount and we paid $71 million and common dividends to shareholders and invested $21 million and growth and productivity capex, leaving approximately $400 million and retained cash flow.
Moving on to slide 10.
The $400 million retained cash flow and other cash sources, including proceeds from the sale of assets more than offset our approximately $700 million of cash outflow. This quarter for working capital as a result, net debt decreased by approximately $100 million.
We also took action to increase our availability under our committed credit lines to $5 8 billion.
Leaving us with ample liquidity to support potentially higher working capital needs.
As you can see on slide 11, we further strengthened our balance sheet during the quarter to a point, where the entirety of our net debt from the 91% of our readily marketable inventory.
With the 9% balance of Rmi being funded with equity.
Please turn to slide 12 for our return metrics.
For the trailing 12 months adjusted ROIC was 18, 7% or 12, one percentage points over Rmi adjusted weighted average cost of capital of six 6%.
Our ROIC was 13, 4% seven four percentage points over our weighted average cost of capital of 6% and well above our stated target of nine.
The widening spread between these metrics reflects how we have been effectively using our line our operations as a tool to generate incremental profit.
Moving to slide 13.
Our discretionary cash flow and cash flow yields have continued to increase reflecting strong cash flow generation that is available for strengthening our balance sheet investing in growth and returning to shareholders.
The trailing 12 months, we produced a discretionary cash flow of almost $1 9 billion and and cash flow yield of nearly 29%.
Please turn to slide 14 enter 2021 outlook.
And as Greg mentioned in his remarks, taking into account our strong Q1 results.
And we're curves and market conditions, we've increased our full year adjusted EPS outlook from at least $6 per share to approximately $7 50 per share. This.
And this is based on the following expectations.
And agribusiness full year results are expected to be up from our previous expectations, but down from 2020.
And refined and specialty oils, we expect full year results to be up from our previous outlook and significantly higher compared to last year due to strong first quarter results and positive demand trends in North America.
Results and billing and corporate and other are expected to be generally in line with last year.
And noncore full year results and our sugar and bioenergy joint venture are expected to be a positive contributor driven by improved sugar and Brazilian ethanol prices.
Additionally, the company expects volume for 2021.
And adjusted annual effective tax rate and the range of 20% to 22%.
Net interest expense and the range of $230 million to $240 million.
Capital expenditures and the range of $2, 425% to 475 million and depreciation and amortization of approximately $415 million.
With that I'll turn things back over to Greg for some closing comments.
Thanks, John.
Before opening the call to Q&A I want to provide some perspective on the balance of 2021 as.
And as we noted with our strong first quarter performance and what we see from the forward curves.
We're forecasting full year EPS to be around $7 50.
While we don't have full visibility and the back half of the year to market and demand trends are favorable we expect higher volumes and increased post COVID-19 foodservice demand and several country as well as from the U S renewable diesel industry and the second half of the year.
And because of the work we've done we now have the ability to pursue the type of projects that help us meet growing demand and continue to improve our platform.
We have a number of projects in various stages to enhance the efficiency of our core oilseeds business.
We're taking a thoughtful approach as we invest and our specialty fats and oils and our plant based proteins businesses.
And we're staying disciplined.
But also recognize that the demand for sustainable products is providing us more opportunities than ever to grow our business as we continue to connect farmers to consumers.
Leadership team and I are incredibly proud of the entire bhangi team's continued focus on execution and we're confident our capabilities and the business model, we have here a bumpy.
There is always more work to be done, we're making progress every day and the results are evident.
And with that I'll open the call to your questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
First question comes from Adam Samuelson from Goldman Sachs. Please go ahead.
Yes, thanks, good morning, everyone.
And good morning, Hi, simple.
And Greg John and I was hoping to maybe dig a little bit on the updated outlook.
And in late first quarter was very strong and.
I'm just trying to think about how much did the full year outlook changed based on the realized first quarter performance versus changes in forward curves your hedge positions and and market outlook.
Over the balance of the year.
Especially on the oilseed crush side, where obviously margins and had been pretty volatile and leased.
The board given given tight soybean and supplies.
Okay.
Yes definitely.
It could be more pleased with the way the team carried the momentum out of our record 2020 here into Q1 and and how they continue to execute.
And consistent with what we've done right, we're going to we're going to tell you what we're seeing.
Currently and the forward curves and the market outlook versus what we hope is going to happen, but that has given us the confidence to go ahead and raise the number from 6% to 750.
There is definitely good momentum and as we said we're seeing and.
Things reopen.
And March where we're getting back to demand and the food side too.
Pre COVID-19 levels, and then of course, why we've seen a little bit of help from renewable diesel here in North America on the oil demand side, we really expect to start to feel that and the second half so.
Feel real comfortable even as early as it is here in the year.
Go ahead and take the number up.
Okay. That's helpful. And then maybe just keying off something you just mentioned on renewable diesel specifically.
And as that demand becomes more visible I mean, you've seen cash oil prices.
And premiums to be very strong year to date.
Help us think about how we should expect.
That incremental demand on the veg oil chain to flow through your P&L, both in oilseeds crush, but but also and the refined oils piece.
On the refining side, which would seem to be a critical bottleneck from a.
Feedstock perspective for a lot of renewable diesel producers near term.
Yes.
And we're real excited about is being basic and all of the oil globally and is connected global oil market is we're going to see the benefit of that multiyear sustained demand really across our system of.
Of course here in North America, where the.
The majority of the work is starting to get done.
And there'll be re formulation both for those that have the ability to do that and the fuel side and then of course on the food side, they've always been where they have the flexibility to reformulate. So we'll be working with our customers as the market adjusts and the market is doing its work with price to Incent some additional supply.
But that takes multi years to get that and play. So we're real excited about the benefits and this mean and.
And with new multiyear demand.
And if I could just squeeze one more quick one and just on that last point Mark.
You've seen some competitors announced especially in Canada, and the canola crush side, a bunch of new capacity.
As you would look at kind of margin structures.
Across.
The forward curves.
Are we anywhere near where you where buggy would consider growth capital and on the crush side or more debottlenecking and maybe expansion on edible oil refining and just trying think about the capital commitment against that opportunity.
Yes, I think if you look at.
Historically, this industry or really any industry. When you are adding a new demand.
And you see price react and the market starts to do its work to put that supply and place a lot of announcements get made some of it even gets built.
And as.
And leading royalty crusher were doing the kind of things you would expect we will be doing and we've already doing debottlenecking.
And our and our crushing and refining footprint will continue to look at.
Number of <unk>.
Projects, where we have work ongoing.
And to.
And do some brownfield, thanks, and maybe a refinery where we don't have one and or add some optionality to be able to crush soft and then as far as far as greenfield those and those who got it makes sense relative discipline, because I saw the spot economics, it's the the long term economics and so we've got to look and building the right plans and the right location.
And the right customer and the and the right partners.
Because the one thing we're going to make sure that we do is when we put.
Along with capital and the ground that we're very comfortable with the long term returns.
Got it and I really appreciate all that color I'll pass it on and thank you.
You bet.
Next question is from Tom similar same manage from J P. Morgan. Please go ahead.
Hi, good morning, guys.
John and Tom.
And so.
Argentina exported a record value of soy products in Q1, how are you expecting Argentina and impact the global sales of complex for the rest of this year.
Yes.
Definitely the market has is needed that supply from Argentina, right. It was calling for Ford on price and at that time.
Im a year when that market should be running hard and I think with the.
Election, coming up and there is still kind of looming devaluation, we expect and as farmers to be pretty.
Pretty much hand to mouth, and so I don't we don't we don't think that industry will run as the urgency will run its hard for the balance of the year, but we have been running harder here in 2021, and we did in 'twenty and I think.
And at the end of the year Youll see that Argentina has run harder in 2021 from a full year, but.
And second half probably won't be as hard as the first half.
And then maybe could you just provide some more color around the quarterly cadence of earnings to get to the $7 50 for the full year.
Yes.
And Tom can you repeat that sorry, you cut out a little bit.
Could you provide some more color around the quarterly cadence of earnings to get to the stuff and its Steve.
For the full year.
So kind of all kind of look at it and have as I think I think based on our first quarter performance, which we largely pushed through the year.
We're looking at probably a split between first and second half about 60 40 as our current outlook.
Obviously things are going to move around a lot, but that's sort of how we look at it last year was a little bit the opposite we were $35 65 first half second half.
With the strong.
Strong start to the year and certainly a lot less visibility into the second half little bit less liquidity out there and a lot of volatility volatility and the market were looking at more of a 60 40 split.
And as we've talked before and this business is the one thing is the.
Broadly available and move around within the value chain and it will move around from quarter to quarter, which is one of the reasons, we've cut and try to get people to also focus on an LTM.
On some statistics.
Yes.
That's very helpful. Thank you I'll pass it on.
The next question comes from Ben Theurer from Barclays. Please go ahead.
Hey, good morning, Greg John So first of all congrats and the strong results. Thank you very much.
A question around capital allocation and your your server.
Ideas around the portfolio I mean, obviously, but one thing that pops up as Youre noncore business I mean, it's now the FERC quota and a row.
And with some positive contribution here and I remember you've talked about it that you want to get that stabilized and basically move forward.
To make out of noncore would actually is not going to be reported anymore.
Give us a quick update on where you think you stand and the process of the divestiture of that sugar and bioenergy business that would be my first question.
Okay.
We are assessing the sugar business and obviously, our first goal is to stabilize that business and improve the performance and of course the team is doing a great job.
Really happy to be part of that joint venture partner with BP.
We are we are certainly as we said before we're certainly looking at some point exiting that business, but.
But obviously timing is important and.
And the markets are a bit interesting and Brazil, obviously with COVID-19 impact.
And benefiting from better sugar and ethanol environment today that we had a year ago better currency environment.
But but we have a little bit of time here before we can really actually execute on anything based on our agreement and but we are exploring some options there thinking about strategically and one is going to be the right time, but again.
Our.
Communication has been pretty consistent over the long run is that we plan to exit that business and the right time.
And I'd say just from a broader portfolio actions.
We're never done it's never really over its constant evaluation and we're challenging lowest returning parts of the portfolio to get better and so we'll continue to always had a focus okay and obviously in line with that and now with the strong cash flow and your balance sheet capacity et cetera, and you've.
You've talked about it and your closing remarks to look for it.
And <unk> disciplined approach and to investments.
And which which regions, which areas where do you think you still have a little bit of flight spreads where do you think you can you can put some money to work to further grow to ultimately benefit from what the underlying dynamics are within what might be done on renewable green diesel is it.
And within the oil seats that then go into whatever.
Meat alternatives and those kind of businesses, just given a little bit defense defense, and where youre heading to from a capital allocation perspective.
Sure I'll tell you we are excited about the timing of finishing up our transformation work and and the divestitures and to have them.
The great operating performance that we have and to now have the fuel and as we've said we feel we've earned the right to grow because we continue to have the global footprint and we will continue to look at that that global network.
And where we need to.
Fortify some of our strongholds and where we need to continue to shore things up and of course with what's going on and in North America net changing some of the flow and that goes into our thinking so that will continue to be on our core oil.
Oilseeds and distribution network and of course, that's still has the benefit of.
Population and per capita income growth and that kind of ticks, along and don't forget that demand growth is continues to be there but to have two new sources of multi year demand and two strong trends in place, it's pretty exciting place to be thinking about renewable diesel and the joining of the thats God and adjustments.
They've got to be happening, there and that's going to create some some definite opportunities and then what we're seeing and plant proteins and so that's creating a not only a real opportunity.
And the plant protein side, but where our specialty fats and oil plays a role in those products and giving them the taste and mouth feel and the bite that people love.
Already working with those customers and the one thing Thats clear whatever trends you look at everybody believes that there's not enough supply to meet the demand for that for the plant protein and so we're going to see a lot of opportunities there.
And then of course that gives us the.
And what's happening on sustainability standpoint, and lower carbon index products, whether it's going to the fuel and food and the feed industry.
We think thats going to create a lot of opportunities for products and services as it runs throughout our entire platform. So.
Excited about.
The team continued to execute and and the choices and the competing that we're going to half of that capital for growth.
Perfect and leave.
And here. Thank you very much John.
Thank you.
The next question comes from Robert Moskow from Credit Suisse. Please go ahead.
Hi, Thanks, just another question on the on our guidance Greg.
And your competitor.
Has specifically pointed to fourth quarter as setting.
Setting up extremely well because of exports to China.
Your guidance seems to.
Have something a little more conservative about fourth quarter and do.
Do you.
This is just the difference and style in terms of how youre looking at the world or is there something about your footprint that.
And we'll make it I guess less easy to capitalize on a on a strong export environment and fourth quarter.
And I'd say, yes.
It might be might be a style issue.
We're not forecasting what we.
I hope it is going to happen we're looking at the forward curves I think the one thing that.
We've got the approach consistent since we got here and the one message that I think everybody was pretty consistent as they didn't want us and promising things we couldn't deliver so.
Look I've got a lot of confidence and this team and as we've said before when we see it.
And we roll it forward as we just did from taken from 6% to 750 and if the opportunities here in Q4 develops the way that some think it will this team will find a way to to chase to chase last year's record number.
Okay and just a.
Follow up.
And with corn up here at $7 and and.
And soybeans.
Above 13, like it's beginning to feel more like 2008 and I'm just wondering if you have any.
Lessons learned from that time period.
Is that just a different time minutes.
Not what we should expect from this time I mean, certainly the write down in terms of deflation for commodities really hurt fungi.
So how should we think about it this time around.
But.
A couple of key things.
And every time a market.
Cycles people like and it's different this time and maybe it is and it's our job to look at that and we do have some new demand and the plant proteins and new demand and renewable diesel there is definitely and new focus on sustainability and climate friendly and regenerative farming and these are from long term trends that are going to change things. How is what we're trying to figure out but I think.
And the biggest thing is that.
Our leadership team all lived through that and we've lived through some other cycles and AG and food and this is this is a time to really and still some discipline. Because this is when industries and companies get in trouble.
When theres, a little irrational exuberance and so youll see us be very disciplined about what we're going to do and thinking about the long term and really stressing the projects that we do so that they will return for the long term I mean, frankly, we just spent some time the last two years cleaning up some things that we want to make sure that we don't make mistakes and the future.
And Rob this is John and I would add on that.
It was important for us and 2008 to manage our balance sheet. Both on the way up and then on the way down and the market's came off.
Well, we ended up with was a very strong balance sheet at the end of 2008 and 2009 to Greg's point as people were struggling we went and we really went on the unplugging for opportunities to divest and over the course of a couple of years after that after the financial crisis of <unk>.
We grew substantially and a couple of years, just with the opportunities and that's really how we think about it.
Great. Okay. Thank you.
The next question comes from Luke Washer from Bank of America. Please go ahead.
Hi, good morning.
Good morning.
So I just wanted to take another stab at your your guidance here great guidance at $7 50.
And you talked about how this is related to your expectation for crush. So maybe just two things what does that expect in terms of your volumes for kind of your process, good and your merchandising goods, specifically and maybe how it relates to global trade or China exports and then on the crush side.
Is there significant variability by region or do you see crush margins being elevated.
Over the course of the year and in most regions.
Yes, let me start government, assuming you can fill in and I would say on the on the food side, Let me talk about how were seeing and on the food side, we're definitely seeing.
And improvement right. We just don't are refined and specialty oil and set a record quarter with every region posted a year on year improvement and.
So a lot of the improvement efforts there we've had to really start to unlock our downstream potential.
And in organic growth and we've got a strong order book and all regions. So a big part of that increase is definitely on the on the food side and then as we talked about.
Earlier, we do expect Argentina, net net to run harder this year.
And then last year, so that will be additional additional volume.
And then second part of the question I'm sorry.
Yes, with respect to margins kind of how we see those over the balance of the year.
And staying fairly fairly consistent on the on the soy side with what we saw in the first quarter.
Overall over the balance of the year it will be a little lumpy from from Q to Q, but.
And it really pretty strong margins on the soft side, we saw very good margins in Q1, maybe not as good over the balance of the year leased on based on the forward curve, but obviously.
And we'll take the opportunity when it's there, but I'd say on the soft side, good strength really and the areas, where we where we're big and Canada and Europe, especially we do expect elevated soft seed margins this year versus a year ago.
I remember you asking about crush margins yes.
If you look around the world of course, there are the best and the U S.
Europe second and then South America, third, but very volatile and the.
And China right now of course with some of the wheat feeding that happened over there.
That hurt meal demand crush.
Crush margins and the worst and in China.
Do we expect those to improve and we're seeing crush margins and Brazil, improving now.
So that's kind of how we see it how do we see and setting up.
Great. Thanks, and maybe just one more on Brazil.
The Supreme your corn crop looks like it's going to be quite delayed here and dry conditions seem to be persistent. So maybe you could provide more detail on how you expect that to impact your business I mean, particularly with soybean oil soybean supplied being rather tight too is this an opportunity from you. When you think about dislocation and your ability to provide value to your <unk>.
Customers or could this be and potential tailwind and headwind and the back half of the year.
And definitely opportunity.
And the one thing about this this global machine here is that.
We definitely help customers during times of dislocation higher volume is good for us higher volatility.
And so the environment that we've got right now.
And is definitely that.
And what you're describing and <unk> yet with with.
And being wet and it got in a little bit later.
It's going to put it kind of a critical development and period out there when it's usually drier so theres some worried about some concern about yield.
So the global corn market will have to kind of fill in and when that crop comes off late and then depending how the weather and how volumes develop.
Of course will be a price driver and which origin destination pairs, you actually end up shipping.
Okay.
Great. Thank you.
The next question comes from Vincent Andrews from Morgan Stanley. Please go ahead.
Hi, Thanks, very much could you talk a little bit about what youre seeing from a from a farmer selling perspective, you already touched on Argentina, but maybe and in Brazil, and I'm just looking at your cash flow statement and the.
And secured advances to suppliers and the quarter was actually a source of cash which is in use and the prior period and.
Youre advances on sales were a little bit less of a use so.
And maybe I'm wrong, but I would've thought that maybe those would've would have been bigger and bigger numbers, but maybe just talk about the Brazilian farmer, selling and finally, starting to decelerate and a material way or what are you seeing.
Yes, a little bit of a switch compared to last year, where you've got the Brazilian farmer.
But behind year ago levels, but not marketing as fast and we've got the North American farmer ahead, a year ago levels and with these prices.
It has been a bit of more aggressive marketer.
As far as those.
More detailed questions, Jonathan and allow me to answer those.
Yeah.
As Greg mentioned farm farmer, selling has slowed a bit and Brazil, we're still very active on the farmer financing and advance and side, but but clearly in the quarter.
Things slow down and we advanced lots and lot of funds fall.
Net of harvest and and as we get into Q1, and Q2 and they are delivering on on crops and you start to see those numbers down generally.
Or maybe in Q1, they open up a whole lot and and in Q2, we will see a more dramatic drop as farmers deliver on crops. So not terribly unusual in terms of the cash flow.
Okay. That's helpful and just as a follow up and in.
Oils into foodservice as rural.
And so we were a lot of foodservice outlets have just been shut.
And for periods of time are operating at very low rates, if they're up and running at all so presumably those folks need to.
Build inventory getting inventory too from a run rate where they can operate again.
Do you think that occurred and the first quarter or I mean, presumably there's more reopening to do so do we is that a tailwind into <unk> or how long do you think it takes to get.
And those foodservice customers to the inventory levels that they need just to be a going concern.
Yes, we saw its low Jan and then we had some of the bad weather through fab.
And then definitely the supply chain, we continue to battle fewer drivers out there on the truck side and getting the railroad crews and places volume to come back up.
But March was good and that's where we saw March at pre COVID-19 levels, which gave us the confidence here in the back half and then when we look at the order book.
Here and the balance of the year. So we do expect volumes to be to be good it will be a little different than historically and it looks like.
Food and home made settle out a little bit above the pre pandemic levels and then as we see foodservice come back I think the big <unk> are probably going to get more than their share.
The smaller foodservice.
And the dine in and looks like it may be slower to recover.
Thanks, very much guys.
You bet.
Next question comes from Ben BN venue from Stephens. Please go ahead.
Hey, Thanks, good morning, everybody.
Hey, good morning.
I wanted to ask on the demand side of the equation.
Initially specific to China, but then more broadly you mentioned, the wheat feeding substitution and the demand for soybean meal being reduced you mentioned you expect that to get better do you think that gets better because of the demand recovery or just a capacity utilization downtrend that kind of firms up the soybean meal market a little bit they're domestic.
<unk>.
And then as you look more broadly across your global footprint and.
And I guess here and the U S. A.
The primary users of grain and protein and ethanol those margin backdrops are quite favorable so it doesn't seem like we're in an environment, where we'd see any demand destruction.
But are you seeing demand destruction, yet at all anywhere across your global footprint.
And then any particular end market that'd be helpful to hear.
Yes, no no demand destruction.
And we'll profitability continues to be good demand continues to be able and meal side as well as of course, we've talked about the oil side.
The two exceptions or Brazil.
They made an adjustment.
<unk> <unk> to <unk> 10, and so we'll be watching and see if that comes it comes back.
And then of course.
A little bit on.
And Brazil, and India with the resurgence of COVID-19.
But they were.
<unk> ahead of that.
And then the week, beating that we've talked about and that's kind of in the market again does its work and you see and historically, we get achieved comes and the rash and it's fed and our price adjust but that did steal a little bit of.
Demand from us and primarily in China, and the soybean meal side, we've been about four points higher on the on the protein side and corn.
But that's a temporary thing it's not a long term structural issue.
And then the other and we'll watch ethanol as it comes back up and they won't get more DDG, but as we typically go down low profitability and good demand right now so feel pretty good about things.
Okay. Great second question is related to kind of strategic initiatives and the ethanol complex and to a lesser extent, but it's being talked about and fertilizers.
There's a lot of discussion and engagement with carbon capture and sequestration what opportunity is that.
Present for you all.
And as large processors.
<unk>.
In terms of whether it's maintenance and make strategic partnerships or participate and projects I'm just curious.
Within your broader ESG goals and greenhouse gas emission reduction goals, where does that fit.
Well, we continue to work on our own platform around our own usage, but we really think there's just a huge opportunity there is such a focus.
On on low carbon and and it starts maybe in a low carbon feedstock supplier.
So the fuel industry.
But I think we believe it's going to continue to be the change and it's really about giving the consumer and what they want and getting some of that value.
Back to the producer.
They continue to change their farming practices to more climate friendly more regenerative farming and then I think we'll see everybody wanting across food feed and fuel wanting lower carbon products.
All the way through and that's that's going to be and opportunity and the products and the services I think youre going to see.
Innovation.
I'll go all the way across the industry and.
Changes changes good right, that's new demand and you've just got to be smart enough to this day.
Up into the right place and make the right investments but.
And we're a huge part of the value chain and that their value is got to be pulled through from the producer and the consumer.
And and we're now.
We're here to help that happen so excited about the new opportunities and Thats been created.
Okay, great. Thanks, and good luck with the rest of the year.
Thank you very much.
The next question comes from Ken Zaslow from Bank of Montreal, and please go ahead.
Hey, good morning, everyone.
Hey, Ken.
Just a couple of questions one is.
When you think about the forward curve.
How do you think soybean oil demand from renewable diesel in there at this point and when do you think it will actually develop into the curve and how does that progress.
Yes, I think.
But I think you know I think we're seeing and writers.
And as clients come on line as they book as it comes.
Reality.
The market tightens up and still.
A big part of that has got to play out and the second half and I think as you see it play out and you'll see if the <unk> comes out of the market, but it's a it's a second half 'twenty, one and then on into 'twenty two.
So you think that over the next half you'll actually see it and the forward curve.
More than you are seeing it now is that fair.
The Mark.
The market is going to do its work, but yes.
You'd have to believe that that's not what the market is telling you today, but.
I think that's what a what a lot of people believe and so thats. What we will we will continue to watch and develop.
Okay and then.
And the question is your.
And your growth Capex can you talk about what was the key projects that you've.
Don.
And what type of return you'll get over what timeframe. So we could put a little.
Quantitative.
Thoughts on that that'd be helpful.
Yes, I can.
Most of our projects were focusing on right now really debottlenecking and smaller.
Play.
Organic growth projects et cetera existing facilities and other greenfield at this point.
But everything and we do need to double digit return.
A lot of those projects that are underway today, probably won't be additive until next year.
But.
We look at and we look at long term and obviously and the first year of startup those projects never hit the ground running but and certainly over the long run they're solid double digit returns on projects is what we expect.
So it's all that's principally what we've been doing right now is really focused on on.
Debottlenecking type projects.
But when you think about the length of those assets, whether it's or whether it's.
So debottlenecking and those are the <unk>.
Highest returning and you can do those the quickest and lowest risk of the brownfield that comes into the next category or if you're looking at greenfield, but they've all got to meet that hurdle.
Yeah.
And I'm sorry, Ken.
When you think about for 2020.
Go back to a base number.
So in 2022, How's your Capex comes in and will that be incremental by 2% to 3% to 10% 10 to 15, but and how do I think about what how that plays out in 2022 of all the Capex and then I'll leave it there I appreciate it.
So you're talking about 'twenty, one capex and how that will impact 'twenty two.
Yeah, no yeah, but the returns how incremental would that be on 2022 look you've been laying down some of the pea protein.
Uh huh.
Infrastructure for renewable diesel all the things you've been doing I think some of it is going to come to fruition and 2022 is that worth a couple of hundred basis points of growth.
And with <unk>.
And I Wonder if I could just curious to see what you're thinking about and 2022 and 2023 from these projects.
Yeah, probably probably a good way to think about it is we're going to spend just a little north of $200 million of share and growth capital and and some of that is going to come on line early next year late next year.
So maybe even the following year part of that and the protein space and for little bit slower growth. Some of it will be and as I mentioned before debottleneck type projects that are going to be free.
Barely started fairly quickly I think.
Probably a fair and rule of thumb would be too soon to assume.
Mid double digit.
Return on capital and probably lagging in it.
And we over next year to where by the end of next year most of the capital we spend this year, probably a majority of it will be up and running by the end of next year, some and will carry on beyond that but it's it's.
Listen a lot and detailed projects. So it's hard to just give you one simple answer.
Great I appreciate it thanks.
Thank you Ken.
There are no more questions and the queue. This concludes our question and answer session.
I would like to turn the conference back over to Ruth Ann Wisener for any closing remarks.
Thanks for your interest and Bonnie and if you have any questions feel free to reach out to day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
And then.
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