Q1 2021 Andersons Inc Earnings Call
Thank you for standing by and welcome to the Andersons 2021 first quarter earnings Conference call. At this time, all participants are in a listen only mode.
After the Speakers' presentation there'll be a question answer session.
The ask a question during the session you will need the press Star then one on the telephone.
Please be advised of today's call is being recorded.
Our initial system price pardon the old switching the operator I don't know of.
The hand, the call over to Mike Olsen, Vice President corporate controller and Investor Relations. Please go ahead.
Thanks, Michele good morning, everyone and thank you for joining us for the Andersons first quarter 2021 earnings call.
We have provided a slide presentation that will enhance today's discussion. If you are viewing this presentation via our webcast the slides and commentary will be unsafe.
This webcast is being recorded in the reporting of the supporting slides will be made available on the investors page of our website at the Andersons, Inc. Dot com shortly.
Certain information today constitutes forward looking statements and actual results could differ materially as a result of many factors, including general economic conditions.
Weather competitive conditions conditions in the Companys industries, both in the United States and internationally. The COVID-19 pandemic and additional factors that are described in the Companys publicly filed documents, including its 34 Act filing.
Of the prospectuses prepared in connection with the Companys offerings.
This presentation and today's prepared remarks contain non-GAAP financial measures reconciliations of non-GAAP measures to the most directly comparable GAAP financial measure are included within the appendix of this presentation.
On the call with me today are Pat Bowe, President and Chief Executive Officer, and Brian Valentine Executive Vice President and Chief Financial Officer.
After our prepared remarks, Pat Brian and I will be happy to take your questions.
The board makes his opening comments I want to remind everyone that our annual shareholders meeting is scheduled for Friday may 7th at eight a M. Eastern day light time and will be held in a virtual only meeting format.
I will now turn the call over the past.
Thank you, Mike and good morning, everyone.
Thank you for joining our call to review our first quarter results.
We're pleased with our strong first quarter performance as each of our four business segments had outstanding year over year results and the company recorded its best first quarter since 2014.
The trade business had an excellent start to the year led by merchandising results in several markets.
Increased volume along with strong margins and dynamic grain markets drove the improvement.
The current market volatility continues to provide us with significant opportunities.
Our ethanol business was profitable for the first quarter of dramatic improvement over last year, when driving demand plummeted last March as a result of the pandemic.
Well the crush margins improved during the quarter as a result of increasing driving demand combined with lower industry stocks.
Cold weather production challenges in certain parts of the country in February.
Co product margins, particularly high protein and conventional he's were strong and we also had excellent ethanol trading results during the quarter.
The plant nutrient business had its best first quarter since 2008.
Margins were up in all product lines on tight supplies and strong demand.
We anticipate this continuing into the second quarter, which is our primary spring fertilizer application season.
Rail reported improved first quarter results due to the scrapping of some railcars given the high price per scrap steel and credit recoveries.
We're also benefiting from the cost reductions that were implemented over the last several years.
Although this was partially offset by larger incentive compensation accruals due to our strong results.
Now I'm going to turn things over to Brian when he's finished I'll be back to discuss our outlook for the rest of the year Brian.
Thanks, Pat and good morning, everyone.
We're now turning to our first quarter results on slide number five.
In the first quarter of 2021 of the company reported net income attributable to the andersons of $15 $1 million or <unk> 45 cents per diluted share and.
And adjusted net income of $15 $5 million or <unk> 46 cents per diluted share on revenues of $2 $6 billion.
This compares to a net loss attributable to the company of $37.7 million or $1.15 per diluted share and an adjusted net loss of $43 $2 million or $1 32 per <unk>.
The diluted share.
On revenues of $1.9 billion in the first quarter of 2020.
Operating general and administrative expenses declined $5.2 million or 5% year over year.
Adjusted EBITA for the first quarter of 2021 was $82 million compared to $11.2 million in the first quarter of 'twenty one.
Adjusted EBITDA for the quarter was higher for all business segments.
Our effective tax rate varies each quarter based on the amount of income or loss attributable to the noncontrolling interest.
Our effective tax rate for the quarter was 30% and we are currently forecasting a full year effective tax rate of 29%.
The increase from 2020 is related to additional U S tax on foreign earnings as well as non deductible compensation.
Next we'll move to slide number six to discuss cash liquidity and debt.
We generated cash flow from operations before changes in working capital of the $89 million during the quarter up significantly from $12 million in the first quarter of 2020.
As we expected our March 31st balance sheet reflects higher working capital usage, which is due to the significant price appreciation in the grain markets.
Readily marketable inventory or our M. I <unk> at the end of the first quarter was $942 million just below the 983 million dollar balance of year end and.
And it's higher than normal for the time of the year.
By definition Rmi is highly liquid and its value exceeds our short term borrowings.
We continue to take a disciplined approach to capital spending which.
Which we expect will be in the range of one hundreds of $125 million for the full year.
We reduced total long term debt by $35 million since yearend.
Long term debt reduction remains a priority.
And we expect to make the total long term debt repayments of between 75 and $100 million in 2020 one.
Now, we'll move on to our review of each of our four businesses beginning with trade on slide number seven.
Trade reported adjusted pretax income of $14.3 million.
<unk> to an adjusted pretax loss of $8 $7 million in the same period of 2020.
Income from merchandising grain was strong compared to the first quarter of 2020 due.
Due to higher demand and increased market volatility.
Specific areas of improvement where through our Houston export terminal as well as in certain of certain regional truck markets.
Propane merchandising was also strong as the result of increased volume due to colder than normal winter temperatures.
Synergy capture and other cost cutting efforts led to a decrease in operating expenses of more than $11 million year over year.
Trades adjusted EBITA for the quarter was $32.5 million compared to adjusted EBITDA of $9 $9 million in the first quarter of 2020.
Moving to slide number eight.
<unk> first quarter pretax income attributable to the company of $2 $9 million was up significantly from the first quarter 2020 loss.
Co product values were of significant source of improvement in ethanol profitability during the quarter.
This was driven by higher feed values, resulting primarily from the increase in corn prices, coupled with our new high protein feed products.
Ethanol board crush crush margins also improved steadily during the quarter due to increases in driving demand and tightness in ethanol stocks.
Third party ethanol and vegetable oil vegetable oil trading results were also higher year over year.
Lastly, our noncash mark to market loss of $1 $1 million was significantly lower than in the first quarter of 2020.
Ethanol recorded EBITDA of $22 million on the first quarter of 2021 up from the loss of 17, and a half million dollars in the first quarter of last year.
Turning to slide number nine.
The plant nutrient business reported pretax income of eight and a half million dollars in the first quarter, which was its best first quarter result, since 2008, and an improvement of nearly $10 million from the first quarter of 2020.
This solid performance was the result of having well positioned inventory in a period of strong demand.
Margins per ton were significantly higher in volumes increased approximately 18%.
Each of our product lines had year over year gross profit improvement.
Plant nutrient EBITDA for the quarter was $16 million, an increase of over $9 million from the first quarter of 2020.
Turning to slide number 10, the rail business recorded pre tax earnings of $4 $9 million in the first quarter of 2021 compared.
Compared with pretax earnings of $1 million in the first quarter of last year.
The year over year change was primarily driven by gains from scrapping older older railcars at high scrap values as well as some credit recoveries.
Lease renewal rates improved sequentially, but are still below long term averages.
Rail had $17 million of EBITDA for the quarter compared with EBITDA of $14.4 million for the first quarter of 2020.
And with that I'd now like to turn things back over to Pat for some thoughts about the remainder of 2021.
Thanks, Brian.
We're proud of our strong start to the year.
And we're optimistic about our prospects for the rest of 2021.
We believe opportunities will continue to be strong in the near term, particularly on the AG sector.
Export demand has been robust, especially from China.
USDA is projecting this crop years Chinese imports of feed grains to exceed the previous record in the crop year 2014 and 15.
This demand continues to support world grain trade and elevation margins remained strong.
We also anticipate that the continued price rally will encourage planted acreage in excess of current USDA estimates.
As a result of these conditions our current outlook for the trade business is positive.
The supplies are projected to be tight into the fall harvest and beyond.
The large harvest will reduce but not eliminate the impact of strong worldwide demand.
With the broad trade portfolio of the profits both on providing storage of grain stocks as well as merchandising grain and grain products per consumptive demand, we see additional opportunities throughout the year.
While these volatile conditions create opportunities, we're very focused on managing risk within the positions. We hold and also continue to closely monitor the impact of planting progress and growing conditions.
It was improvement in gasoline demand both from the pandemic recovery and seasonal driving increases we.
We expect continued strength in ethanol margins.
Tight supplies of supporting ethanol prices and strong demand for co products is beneficial to our business results.
We continue to produce and sell new high protein feed products for both cone, which Kansas and Denison, Iowa plants at good margins.
We've completed spring maintenance shutdowns of our four plants owned jointly with marathon petroleum and the element maintenance shutdown is scheduled for mid may.
We are well positioned to capitalize on these improving margins and our efficient plant network.
We expect our plant nutrient business to continue its strong performance as they complete this year's spring fertilizer application season.
The increased farmer income demand for conventional and specialty AG inputs is strong.
Demand for our engineered granules, and especially liquids in AG and industrial products has also been solid and we expect that to continue through the next year.
While we believe we're past the low point in railcar demand and sequential lease rates have improved recovery in the industry remains slow.
And tuning strength in scrap steel prices, whereas the scrap railcars, where it makes economic sense.
But overall idled cars have declined in North America, and we expect that the demand picture for railcars and repair services will continue to improve slowly.
So in closing with a significant improvement in AG fundamentals, we're very excited about our growth prospects this year and beyond.
We're well positioned to support our customers, while paying close attention the risk as well as operating safely and efficiently.
With that I'd like to hand, the call back to Michelle and we'll be happy to entertain your questions.
Thank you as a reminder to ask a question. Please press Star then one if your question has been answered and you'd like to remove yourself from the queue. Please press the pound key.
Our first question comes from Ken Zaslow.
With bank of Montreal Your line is open.
Hey, good morning, everyone.
Good morning, Ken.
I just have a couple of questions just to start off with one is on the ethanol side.
It seems like you broke the tie between one company is saying that it wasn't that strong in another company, saying, it's very strong, but you think that the recovery will.
B.
Yes, again or do you think it's going to be just a slow build and what do you think the key contingencies are from.
For production to stay in check.
Good question kind of I think I'd go with a slow build because we really had to the.
Spike in grain markets rallied our co products and really helped us with our corn oil a lot of the Cornell also benefiting from renewable diesel, but our feed credits being really strong so that moved earlier in the year.
Demand coming off the the February when we had the you know the cold snap.
For some plants in the industry caused a little bit of a shortage of stocks were shorter, but now the outlook for for driving and spring summer driving season looks to be good. So we're optimistic.
For ethanol demand in the near term, even with some new capacity coming back online so.
I think what we always figure is get our plants in very good shape. So we finished our spring shutdowns.
So the element to go here on the weekend and we're gonna be in really good shape to capture those opportunities.
Can we just go a little bit further on the ethanol business.
In terms of the corn oil what is the relative magnitude.
Of how much you how do we think about how the corn oil prices impact your ethanol margin structure.
That's the first part and then the second part is can you discuss your protein technology.
Where have you been selling it to.
How much is sold can you just give us some parameters to the.
Protein side of it.
Sure firsthand on on Cournot of dry milk corn oil on the market has moved dramatically. Just for example, I believe from July to March the.
The market moved from 20.
250.
55 cents. So for US every 10 cent move ads of $13 million per our bottom line for all of our that's for enterprise.
With shared with marathon, so it's a significant improvement from where we had been historically and that's fair for the whole industry. We also set up a virtual trading desk over a year ago, and we look to optimize our trade flows on corn oil and that's worked out well so far.
To clarify the number the 13 million pet said as per the call. It 100 per cent sure of ethanol as.
As Pat said with the shared with marathon.
And then Ken on the on the high protein feed technologies.
We've installed that in Denison, Iowa, and that was installed from the beginning and our coal which Kansas plant.
We went from original trials with Feedlots and University tests and trials to be fully commercial there and are getting the soybean meal equivalent value for our Andy feed products and so we're very.
Im confident about that we have several steps put in place to be able to do that at our other locations, but don't have the full of high protein feed profile there yet.
And we hope to be able to invest to make that happen later, but I think the key thing for US now are.
All of our early results and with commercial feedback from the customers have been very good and the values have held so we're feeling pretty confident about high protein feed and its future.
Can you give a relative idea of.
The.
Works on your earnings as well of the same sort of the sensitivity that you gave on the corn oil side, how do we think about it as you move further through this process.
The incremental profitability in Denison and how it's going to work through the next facility just some parameters set. So we can kind of think about as you move through this the the sustainability of this beyond the ethanol margin sure.
Good question and the answer is I don't know the answer.
Exactly how much dollars per ton on feed credit over and above what we had from the normal feed market.
We can get back to you on that Ken I, just don't have it right at hand on our team has that of course, so the happy to get that information to well.
Fortunately, we have the conference coming up so I'll ask your debt is well exactly there you go.
And just sorry, just continue on the.
<unk>.
The Nutri business could you talk about the sustainability of that beyond this year is it an aberrational year is this something that you know.
Given the strength of of the <unk>.
Commodities and see the multiyear strength is this something that you're going to continue to keep again it almost seems like you could actually approach of your 2024 numbers a little bit earlier is that the way to think about it yes.
Yeah, I think I think it isn't a short term blip of course AG market pricing and thus the impact of the farmers, having you know a sounder balance sheet helps also the demand for grain from exports, particularly China driving up and tightening in the U S balance sheet for grain helps people want to put you know get better.
Yields so we've seen a big recovery in our volume and margin on the fertilizer side a lot of our products are sold out for the spring.
This is not a positioning gain we didn't we didn't make a lot of money in this quarter by being long one commodity of another this was really a back to back shipping and supporting our customers' fundamental business, we've had consecutive sequential improvements quarter over quarter in that business have improved a lot of our product lines.
This includes our lawn and garden products in other specialty products. So overall, it's been a very robust segment for us and I think that's going to continue we see the outlook for fertilizer demand to be solid probably for next crop year, given the outlook for the supply and demand to be pretty tight and prices high.
So we feel very good about the positioning of our of plant nutrient business and how it will continue to grow. So answered. The question is yes, it feels good and improving overtime and the.
Channel inventories.
Of the is it similar to historical averages.
It's tighter I think it's tighter I don't have the exact number for you but many.
And if you had to buy something spot today I don't know if you could get it.
So we had contracted early with our key suppliers, we've had long term relations with our big suppliers and we support all of our customers for the spring season.
So we're in very good position for that I think if you had to go out and put on additional tonnage it'd be very hard to do so because the markets are tight right now.
And then my last part of the and then.
Is it the.
Price is the seasonality to the FERC prices, but the.
Same thing intentions will ramp down does that affect your total profitability for the year or the pricing overcome that.
Again, you know part of my ignorance, but help me understand that dynamic between the two of the prices and the volumes and I'll leave it sure yes, sure Ken and as you know I mean or are planning.
Planning season drives our plant nutrient business. So it's made really right now so planting progress has picked up dramatically in the last couple of weeks of U S. Planning is up to 46% and that's ahead of the 36.
Per cent five year average in our area and our fertilizer sales area. It's been off to a good start we have a little bit of of rain coming in here. This week and the next 10 days, which is actually good and actually maybe slowed things a little bit, but that's actually okay lets us farmers get of breath when they can get back at it so I think the air.
The question is.
We're current did we pulled some volume forward or margin forward in the first quarter, because we had good sales, it's maybe a little bit but it feels like second quarter is even stronger.
We're going to have a really full second quarter normal spring planting rush for our fertilizer products. So I think it'll be more in line with historical you know.
The trend on time, but our volume and margins of just stronger flat out and then you know that you end up that season completes and then your third and fourth quarter goes quieter, but there might be bigger fall applications. This year as farmers push to get more production and fertilizer crops of as much as they can for yield.
The <unk>.
Thank you very much be well.
Thank you.
Yeah.
Our next question comes from Ben being the no.
With Stephens your line is open.
Hey, Thanks, good morning, everybody.
Women.
Wanted to follow up on Ken's question on the the ICM high protein what is the level of appetite that you guys have to expand that technology and I'd be curious one of the Governor Inc. Factor governing factors to determine whether or not you do that as the market receptivity to the kind of moving up.
To higher protein values for the the protein. So is it a balance sheet decision. Brian is the priority of to pay down long term debt and get through this period of higher Rmi. Just help me think about the does just the decision tree that you guys have there.
I think there's true.
The decision tree, it's the strategic ones. So we started on this path five years ago, and you have to do several of precursors in each of our facilities to get to the point, where you can do the separations and create the kind of products you want to so we've done a lot of that base fundamentals at several of the plants. We put the finished product in a day.
Dennis and most recently because we felt that was a better capital market, we would have better opportunities for margin capture and we started with the element from the get go on it. So we've proven out the market and make sure of the receptivity was there as well as just the technical part of running the product et cetera. So now it's just a question of time.
And investments and we've taken a progressively.
Moving month by month step to produce up the technology chain at our plants and our plan is the continued to do it on that pace no recent to go Crazy and rush to do that but also there's nothing that's told us the slow down because we see the values are there and we feel we can pay down debt keep a very good balance sheet.
And still make those investments for higher protein feed products at our other facilities and Ben just to add to that with regard to kind of how we will prioritize that we'll look at the relative returns on a risk adjusted basis look of how that compares to our to our WAC and so.
We certainly feel like we have the the financing capacity to move forward with these projects you're absolutely right. We're in a period of of higher working capital usage and an rmi, but we sort of look at that as a as a separate items because the the short term debt is really for for that working capital in the effectively cash equivalents.
The grain inventory and the margin calls so.
Yes, the long term debt reduction remains a priority, but we certainly have adequate capacity to fund these types of projects.
Okay great.
Switching gears to corn oil production.
Free desirable veg oil within the complex, particularly relative to <unk>.
It's low Ci score within the basket of central feedstocks for renewable diesel production of two questions. There one.
You know how.
How do you think about maximizing the value of the <unk>.
Production of that product potentially beyond just selling it in the open market at the clearing price.
Are there any strategic partnerships that that makes sense potentially what would it take to make that determination.
And then within your overall ethanol production what opportunities do you see to take your Ci scores lower.
Okay. Good good set of questions. So I mean, we're super optimistic and excited about what's happening with the development of renewable diesel one of the more the amazing market Disruptors of happened to the oil complex in a long long time.
So it is expected to consume consume up to about 33 billion.
The additional pounds I mean, this is a significant impact of the balance sheet to everyone in veg oils.
On this call it 25 billion of new demand over and above the conventional.
The biodiesel we had before so I think the exciting part about this is why we set up the trading desk, we have been working not only with our own cornel, but setting up other veg oil producers.
To be able to buy that product and be a key supplier in source to these large refineries.
Of course, we have our our partnership and our ethanol business with marathon petroleum they've been of great partner on this in a very Oh.
You know a large company that is very much committed to renewables and we see potential to do more with marathon. We're excited about the partnership but more importantly, we think there's opportunities across the medical space with Terminalling and shipping and being able to be of provider now we're not of soybean crusher nor are we building of your.
The diesel plant, but there's lots of lots of opportunity in the middle to merchandize and provide services to that supply chain given the newness of it. So I think that's a very good place for.
For a company like the andersons to fill a need there. So that's what we're doing now and that's just continuing to grow and we are interested in other potential partnerships and having discussions there, but nothing we could announce at this time.
And then you won't yet.
Sure.
I'm sorry no.
You also asked about lower Ci score.
Just go back to element. So we ran our 90 day trial for California to submit for carb to get approval of our lower Ci score of gut. So we ran the the the test and now we're right in process of submitting it we assume in the third quarter will be shipping to California with approval of pending that of.
Final approval from California, and there'll be able to capture that low Ci.
The position that we have at our element plant now we also have done.
Working all the time to improve our carbon footprint at all of our plants.
And make them lower Ci scores and excited about that and we continue recaptures.
C O two of all of our plants some of them over the fence.
In our three eastern plants to see two producers and we're also working on other aspects of feed and energy in each of our plans to continue our pursuit of low Ci.
And also optimizing Cornell yields that was the other thing you talked about you didn't want the squeeze out every pound you can of your corner of yield possible. So kind of working on all of those at the same time.
The position is super strong low cost producer also with low Ci scores.
Okay.
Revisiting again Ken's question on ethanol I could touch on the domestic backdrop, it looks favorable given the recovery in driving miles.
What do you think about the export market I know, we just saw numbers yesterday, the China numbers look pretty encouraging but maybe some.
Some of the from left to be desired from other major expert partners.
What do you think about the export opportunity and does that present an opportunity.
You know to be contributed to the the.
Favorable F&B for ethanol.
Yeah given the.
The explosive nature of AG shipments to the export market. This past year, one would think there would be good potential on ethanol exports. So we finished 2020 at 1.437 billion gallons I believe which was up from 19.
But not as high as the one five we had done in 18. So you know the the pace. So far we're little behind kind of debt I think a little bit Cobra related with Canada, and Mexico, but there's opportunities to Asia. As you know we had Chinese by early this year haven't been back in a big way, but theres good potential we think for export.
To be higher now I doubt, it's going to be a runaway number, but we could see a return to a one four kind of number which would be very supportive the ethanol complex.
So it's off to a little bit of a slow start it appears.
Alright.
Can we talk a little bit about crop demand and supply of set up on your view there what's the ideal environment.
For you from here and what are the the risks that you guys are cognizant of off on your dashboard as you think about navigating through.
The next several quarters.
Sure I mean the.
Set up that's the that's played out for ourselves and then also I would just say from the grain industry as a whole.
Driven by Big Chinese demand and increased exports is a rising tide lifts all boats no pun intended there so elevation margins of.
Dramatically increased across the sector not just for the export ports, but backing up into the interior of a more than offsetting any decline in storage income. So we think that will continue.
And the Big question is how many acres are going to be planted as you know on the USDA said 91, one on their last report for corn and a lot of people think that number is too low we felt that way all along.
We probably use the 93 million acre planning and with the progress we've seen so far.
Some good rains that have come in and good planting conditions I mean, we should see a very solid planting season, which is really going be beneficial just have more bushels to handle as we get into new crop.
We of our largest new crop book on of Farmers' purchases are of purchases from farmers than we've seen for many years and they are pretty sold pretty aggressively for old crop. So of the farmers has been selling into this rally which is a good thing and.
The only challenges for everyone on the grain industry you have to pay those margin calls on the hire.
Prices that have happened at the board of trade, thus driving up our RMA Rmi like everyone else, but it's great position to have we like owning the.
<unk> positions we have through.
Through the balance of the season and into new crop in or buying those of good levels that we can merchandise and make good margins on O'brien, you want to add anything to that or venue had asked about some of the risk factors. I think you know obviously, there's increased credit risk in this environment. There's there can be farmer delivery risks, depending on where they live.
And I think we have a what we believe to be a pretty robust risk management process and team and committee that meets regularly and so it's something that we try to monitor and manage very closely but those are always those are always the additional risk factors in that environment.
And there could be some noise in the ex right historically, sometimes China from making big purchases might cancel some purchases or.
Or are they come back and buy bigger for next year as they try to stock up for their strategic reserves. So I think there might be some timing that happens with export sales will be interesting to watch.
Big thing that the market is focused on now is really crop conditions.
Finishing up Brazil, that's been dry and then see how the U S gets planted and gets a good start on the year. So so far so good on the U S side.
Yeah.
That's very helpful. My last question is on the rail business. So you see the seeing some signs of improvement.
What point should we begin to see lease rates improve for you guys in particular.
And as we mentioned in there so some of our results this quarter were bolstered by <unk>.
Credit collection of he made is also scrap.
Out of favor cars because of a higher scrap prices I mean really high scrap prices for scrap steel so that was the smart play for us.
The lease.
Lease rates sequentially are improving but we still it depends on stuff, we're coming off of three years ago that were much higher so it kind of depends on where you're at in the cycle.
The answer your question as we see the just a slow recovery.
With the major infrastructure Bill and see in the U S economy continue to step up that helps rail the rail markets overall, but it's a much slower recovery, obviously, our fertilizer and grain car portion is good right now, but there's other segments that are a little bit slower to recover so I think the answer to your questions basically.
Slow steady recovery.
And a lot of that probably more backend weighted towards Q4.
Okay.
Congrats on the first quarter and good luck the summer.
Thank you it's been.
So fun to see the really positive results for the quarter.
Yes, it's comprised of thanks.
Our next question comes from Eric Larson with Seaport Global Your line is open.
Yes, good morning, everyone and nice to see such a strong quarter during a typically seasonally weak quarter right.
Alright.
Thanks, Eric.
Paul.
On the dual bundle, but more on on <unk>.
Trade.
Obviously, what we've got.
The volatility in this market that we haven't had in six or seven years, which is really nice.
And it's creating a lot of merchandize from opportunity.
Honestly, we have or we don't.
The carry and the forward and the forward market here.
So what.
What what.
What was your storage income number for 2020.
Do you have to overcome all of that in order to.
Continuing to have strong results.
Yeah, I don't know exact storage income per se, but I think what the key thing is that while you said spreads have been very narrow and there isn't a cash carry on the futures market. There has been of cash carry on the cash grain market, where customers want to put on coverage for the spring and summer and thus are paying off of.
Cash carry to lock in shipments of domestic grain. So gives you a margin story for the next several months, which that's been good to see and we've been able to take advantage of those trades of of selling and elevating grain here of this spring summer. So that's been encouraging.
And then new crop will have to see how the spreads play out as wheat crop comes in the summer and what we see in the fall. So the merchandising margins, we're making on grain and our grain elevations overall are well in excess of what our storage income.
It was so the key thing for us, we're capturing those margins by selling the grain which is better than storing it at this time.
Yeah.
True.
The ratio of these cash markets, particularly for this time of year on our.
Extraordinary to be honest with you so.
You put about $600 million of debt on short term debt on.
On your balance sheet to take advantage of these merchandising opportunities, obviously because of the higher grain prices.
Are you going to need to actually take on more debt in order to capture more opportunities or.
Is this the level that you can work with.
To continue to drive really strong.
The result.
Yes, it's a really good question I think you know at the end of the quarter we had.
About $450 million of the additional capacity at our in our revolver facility to the extent that where it makes sense, we certainly will.
Utilise that revolver R. I think you've probably heard us talk in the past our trade group uses a we have a little over 45 profit centers that have a very very.
Focused process, where they they have a capital charge and they have they are charged for their short term borrowings and so theyre looking at the economics of all of these trades and doing what makes the best sense and so if I think about even how it would go in a typical year. It usually call. It first quarter and then in the second quarter would be sort of where.
We peak.
If you think about I'm going to flip over the plant nutrient how plant nutrient flows you could see a little bit less working capital usage by the end of the second quarter there but.
And then by the end of the third quarter is usually where we kind of hit a trough I think it is more likely to be elevated this year, given the trading dynamics in the higher commodity prices.
Maybe if the pilot pile onto that Eric that you know these are short term debt requirements. The <unk>.
Fund margin calls for futures is the same for everybody of the industry I think you well know that.
The margins, we're getting a bit so outstanding debt more than offsets any additional cost for debt or additional debt and so this is true for others. In our segment. This has been of a good market. So if you want to capture those margins and have your debt load to make sure you can finance them.
Yeah sure, let's just keep Janet Yellen at bank of Huh.
So for the the.
The next question of the Great Lakes or how often are you shipping are you shipping grain export and grain on the great Lakes right. Now you are loading of boat today as we speak so the answer is yes.
Interesting okay. Good so the next question plant nutrients.
The.
Obviously, the well and we're still seeing.
Liberty still seeing from electric prices go up which is astounding. So your margins of.
Yeah.
But it.
Is it is the business now.
Changed such that farmers are kind of wanting.
It was more of your low salt start is that helping your other per.
Premium liquid fertilizer business revenue here as well and is that something for the second quarter that we could look forward to.
You really haven't had in a few years in terms of good good fundamentals in your liquids.
And the answer is yes, and we are.
<unk> been able to get benefits of that already we see low salt liquid starters and other specialty fertilizer sales strong.
One of the challenges to that business as the raw material costs have gone way up to just like the rest of the fertilizer industry, but we've been able to pass that along through our our product margins.
The segments I mean, our our lawn segment has had a really good start and we do co manufacturing and other engineered granules. All of those businesses are running full of plants are running full out so it's a broad across the spectrum.
Left to volume and margins in that business. So it's not just one product right or one particular spike of one.
The particular segment and the key thing is we want to be sold out right. So you don't want to be long high priced product when the season restocked when it's over so we just want to be very close in our supply chain and sell out all of our inventories as best we can to the market here. This spring.
Okay.
So just.
Curious on some of the conversations you're having with your customers, we know soybean supply near term old crop is really tight.
The way corn prices are acting it seems like the.
Seem to be even tighter than maybe what the USDA estimates or either that or the farmers of full price.
It all out of already or are just literally just hanging onto it.
Can you give us give me a little flavor as to how youre looking at the old crop tightness and is it real.
Real tight or is it just farmers, saying day.
I want some more income.
No it's really tight so are we.
We have much higher farmers fine this year and we recommended our grower customers to make sure. They capture of this price increase which I think they were smart and doing so so we of probably one of our higher old crop books of ownership on that we've seen in a long time. So the marketplace is tight theres good Maher.
<unk> for all players in the marketplace and as you know the Carryout for soybeans is very tight.
Corn could be getting tighter it depends on how the season finishes off but the answer is going to be we're gonna have had premiums in a good position here of the rest of the spring and then it can be all focused on the board and the board's can be focused on planting and crop conditions.
The good news about that I think we're going to have a good fertilizer application season, we have good weather good subsoil moisture so everything's.
Pointing towards a big crop if we get it all in and we're ahead of schedule. So we feel good about how the crop looks for next year, but it's going to be tight finish to the year tighter.
Tighter than we've seen in some time and we're well positioned for that.
So this is a little bit of of more forward looking question here. So.
Have farmers the pricing any new crop or commercial buyers trying to price the new crop yet or is.
Is it just too early for for that activity would be taking place for your forward book lets say.
Let's say this fall.
And into 'twenty two.
No you're right.
The answer is yes that they've been selling new crop farmer has sold into the new crop rally and.
And we have good long positions of good balance basis ownership of ownership for harvest. This next year I don't think we've seen a lot of early buying for the next crop year from the end consumer or even the ex border and that's the part that probably still remains but the farmer has been an active seller.
Okay I figured that that was the case final question.
Didn't mention anything about forward coverage on on your on your ethanol business have you locked in.
We've taken advantage of the market, giving up with the lock in.
Any of your forward business here.
Yeah. So as you know, Eric we're always trading and locking in margins when we can in our ethanol business. We've been able to do that did some of that in the first quarter and a little bit of into the second quarter were not much farther from the rest of the year, but anytime we get an opportunity to lock down margins that are part.
Positive in that business that put us in good position, we'll do so so the answer is yes, but I wouldn't say, it's significant when you get to.
Third and fourth quarter.
I mean, if you're bullish on the market okay.
That is all I had and we'll talk a little bit later, thank you for letting me ask the question.
Terrific. Thank you.
There are no further questions I'd like to turn the call back over to Mike Walter for any closing remarks.
Thanks, Michele we want to thank you all for joining US. This morning, I also want to mention again that this presentation will be available on the investors page of our website at Andersons, Inc. Dot com.
Our next earnings conference call is scheduled for Wednesday August 4th at 11, a M. Eastern daylight time, when we will review our second quarter 2021 results as always thank you for your interest in the Andersons and we look forward to speaking with you again soon.
Ladies and gentlemen, this does conclude the conference you may now disconnect everyone have a great day.
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Okay.
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