Q4 2021 Archer-Daniels-Midland Co Earnings Call
Yes.
[music].
Good morning, and welcome to the ADM fourth quarter 2021 earnings Conference call.
All lines have been placed on a listen only mode to prevent background noise. As a reminder, this call is being recorded.
I would now like to introduce your host for today's call Vikram, Lisa <unk> Senior Vice President head of Investor Relations, Chief Financial Officer Nutrition for ADM. Mr. <unk> you may begin.
Thank you Greg good.
Good morning, and welcome to Aam's fourth quarter earnings webcast.
Starting tomorrow, a replay of today's webcast will be available at ADM Dot com.
For those following the presentation. Please turn to slide two the Companys Safe Harbor statement, which says that some of our comments and materials constitute forward looking statements that reflect management's current views and estimates of future economic circumstances industry conditions company performance and financial results.
These statements and materials are based on many assumptions and factors that are subject to risks and uncertainties. ADM has provided additional information in its reports on file with the SEC concerning assumptions and factors that could cause actual results could differ materially from those in this presentation and you should carefully review the assumptions.
In fact, that's an ITT reports.
To the extent permitted under applicable law ADM assumes no obligation to update any forward looking statements as a result of new information or future events.
On today's webcast, our chairman and Chief Executive Officer, Juan Luciano will provide an overview of the quarter and the year.
Our Chief Financial Officer, Ray Young will review the drivers of our performance as well as corporate results on financial highlights.
Then Juan will discuss our outlook after which they will take your questions. Please turn to slide three I will now turn the call over to Juan.
Thank you Victor.
Our team delivered a super fourth quarter.
This morning, we reported record fourth quarter adjusted earnings per share of $1 50.
Adjusted segment operating profit was $1 $4 billion.
23% higher than the fourth quarter of 2020.
Our trailing four quarter adjusted EBITDA was $4 9 billion.
One point to $5 billion more than a year ago, and our trailing four quarter average adjusted <unk> was 7%.
Okay.
Slide four please.
The performance represented a strong finish to an outstanding 2021.
For the full year adjusted EPS was $5 19.
Also a record.
Full year adjusted segment operating profit.
Four 8 billion.
This excellent performance was reflected across the company.
The AG services and oilseeds team's actions to improve their business portfolio and the strength in their operating model.
Continued to enable superior performance in a strong market environment.
<unk> delivered full year 2021, <unk> of $2 8 billion.
With each sub segment performing at or near historic highs.
Carbohydrate solutions executed phenomenally well to deliver full year operating profit so one 3 billion.
And the team is continuing the evolution of carbohydrate solutions from the sale of our priority of drained dry mill and the announcement of the sustainable aviation fuel Mou.
Our agreement with LG Chem, and the continued growth of our exciting value solutions platform, which deliver new revenue wins with an annualized run rate of almost $100 million.
So the project, we announced earlier this month to further decarbonize, our operations by connecting to other major processing facilities to a real indicator of carbon capture and storage capability.
The nutrition team once again delivered industry, leading revenue and op growth.
With full year revenues up 16%.
Full year to <unk> $691 million, representing a 20% year over year increase.
We also continued to enhance our nutrition business with the strategic investments targeted at growing areas of demand, including soy protein, which will expand our participation in alternative proteins.
<unk>, which substantially enhanced our presence in pet food and treats.
The airline which continued the expansion of our functional probiotics enzymes portfolio within our global health and wellness business.
And FIFA, which enhanced our flavor footprint by opening up new growth opportunities in Latin America and the Caribbean.
Slide five please.
Last month.
Global Investor Day, we unveiled our strategic plan and reiterate our balanced financial framework for value creation.
Clothing, using our strong cash flows to deliver both growth investments and distributions to shareholders.
We are confident in our plan.
Which is why we are pleased to announce an 8% increase in our quarterly dividend to <unk> 40 per share.
We are proud of our record of 90 uninterrupted year, so the dividends and more than 40 years of consecutive annual dividend increases.
We are pleased to continue to follow through on our commitment to shareholder value creation.
Yeah.
It's been a great year, and we're excited about what's to come.
Our continued actions to build the best at ADM and dynamically align it with the global trends of put security health and wellbeing and sustainability.
And the steadfast advancement of our productivity and innovation initiatives.
<unk> helped propel our 2022 results.
I will talk in more detail about the upcoming calendar year, shortly but first I'd like to turn the call over to <unk> to review our business performance.
Thanks, Juan good morning, Good afternoon, everyone slide six please.
The AG services and oilseeds team capped off really a truly impressive year successfully navigating through supply chain challenges to deliver results largely in line with the extremely strong prior year quarter.
AG services team performed well in an environment of continued strong global demand, including significantly increased export volumes for customers outside of China.
Global trade was substantially higher year over year, driven by solid risk management and improved results in global Ocean freight.
Overall AG services delivered strong results just slightly off the outstanding fourth quarter of 2020, when we benefit from exceptionally high export margins.
Crushing executed well on the continued solid demand environment for both soybean meal and vegetable oil.
Lower results in EMEA versus a very strong fourth quarter of 2020 and.
And approximately $250 million and net negative timing impacts versus negative $125 million in the prior year quarter.
Drove overall results lower year over year.
The majority of those negative timing effects are expected to reverse in the first half of 2022.
Refined products and other team delivered substantially higher results versus the prior year period, driven by strong volumes and margins in North America for refine the wells and improve biodiesel biodiesel margins in North America, and EMEA, which more than offset weaker south American results due to the reduced biodiesel.
<unk> mandate.
Equity earnings from Wilmar were higher year over year.
Looking ahead, we expect a strong first quarter from AG services and oilseeds.
Higher than the first quarter of 2021.
And in line with the just ended fourth quarter.
Slide seven please.
Carbohydrate solutions fourth quarter results were more than double the prior year quarter.
In starches, and sweeteners subsegment, including ethanol production from our wet mills results were lower versus the fourth quarter of 2020.
Driven by higher input costs, including energy costs in EMEA.
As well as lower wheat milling volumes par.
Partially offset by continued strong ethanol margins.
Volumes for North America, Sweeteners, and starches were largely flat year over year.
Vantage corn processors or results were again substantially higher year over year.
Driven by historically strong industry ethanol margins as a result of strong demand relative to supply as well as increased sales volumes due to production at the two dry mills that were idle in the previous year period.
As we look ahead, we believe the first quarter for carbohydrate solutions should be similar to or slightly above the strong first quarter of 2021.
Slide eight please.
The nutrition business closed out a year of consistent and strong growth with fourth quarter revenues, 19% higher year over year.
21% on a constant currency basis, with 26% higher profits year over year and sustained strong EBITDA margins.
Human nutrition had a great fourth quarter with revenue growth of 21% on a constant currency basis.
Substantially higher profit.
Flavors continued its growth trajectory driven primarily by improved product mix in EMEA and continued strong performance from North America.
Offset by weaker APAC results.
In specialty ingredients overall profits for the fourth quarter were in line with the year ago period as strong demand for plant based proteins offset the impact of onetime insurance proceeds in the fourth quarter of 2020.
Health and wellness was higher versus the prior year quarter as the business continued to deliver growing profits in bioactive and fermentation.
Animal nutrition revenue was up 21% on a constant currency basis and operating profit was much higher year over year, driven primarily by continued strength in our mineral assets.
Now looking ahead, we expect nutrition to continue to grow operating profit at a 15% plus rate for calendar year 2022, with the first quarter similar to the first quarter of 2021 with continued revenue growth.
By some higher costs upfront in the year and the absence of the onetime benefits we saw in the first quarter of the prior year.
Slide nine please.
Now, let me finish up with a few observations from the other segment as well as some of the corporate line items.
Other business results were substantially higher driven primarily by higher captive insurance underwriting results as the prior year quarter included larger intra company insurance settlements.
For calendar year 2022, we expect other business results to be similar to 2021.
For the first quarter, we expect a loss of about $25 million due to insurance settlements currently planned.
Net interest expense increased year over year on higher short term borrowings.
In the corporate lines on allocated corporate costs of $276 million.
Were lower year over year, due primarily to increased variable performance related compensation expense accruals in the prior year.
Partially offset by higher <unk>.
Offering and project related costs and transfer of costs from business segments into centralized centers of excellence in supply chain and operations.
We anticipate calendar year, 2022, total corporate costs, including net interest corporate unallocated and other corporate to be in line with the $1 $2 billion area.
Consistent with what I discussed that global Investor day, with net interest roughly similar corporate unallocated a bit higher.
Corporate other a bit lower.
The effective tax rate for the fourth quarter of 2021 was approximately 21% compared to 8% in the prior year.
The calendar year 2021 effective tax rate was approximately 17% up from 5% in 2020.
The increase for the calendar year was due primarily to changes in geographic mix of earnings and current year discrete tax items.
<unk> valuation allowance and return to provision adjustments.
Looking ahead, we're expecting full year, 2022% effective tax rate to be in the range of 16% to 19%.
Our balance sheet remains solid with a net debt to total capital ratio of about 28% and available liquidity of about $9 billion.
With that let me turn it back to one one.
Thank you Ray Slide 10 please.
I hope most of you were able to join us on our global Investor Day last month.
There we showed that we have consistently advance our strategy from our work to improve otherwise see through capital cost and cash.
Our strategy of growth and margin enhancement accomplishments, including the creation of our global nutrition business.
Today's focus on productivity and innovation.
Thanks to these work, we're moving into 2020 to divert that ADM.
In motor returns focused organization with higher margins and less volatility volatile earnings and a portfolio that is well positioned to capitalize on the positive structural changes being driven by gain during lower trends of.
Put security health and wellbeing and sustainability.
Slide 11 please.
Let me take a few moments to talk about how we see the 'twenty to 'twenty two environment.
In AG services and oilseeds we.
We see a continued favorable global demand environment.
Due to a short growth in South America with the magnitude of the shortfall still to be determined we expect global AG commodity buyers will rely relatively more on the U S market for their needs.
Assuming we have a normal U S crop later this year.
On the oilseeds side, we're starting 2022 with a strong soy crush margins.
And as we've discussed our global Investor base, we believe that the increasing demand for meal as well as the vegetable oil as a feedstock for renewable green diesel.
It should continue to support the positive on vitamin this year with our soy crush margins in the range of 45 to $55 per metric ton.
Assuming this dynamics play out we believe that AG services and oilseeds in 2022 has the potential to delivered operating profit similar to or better than 2021.
For carbohydrate solutions, we are assuming the demand and margin environment for our start of sweetener products will be steady versus 2021.
We expect the industry ethanol environment to continue to be constructive.
Supported by the recovery of domestic demand to pre COVID-19 levels energy costs driving higher exports.
Better clarity on the regulatory landscape.
With this in mind, we had assuming higher ADM ethanol volumes and EBITDA margins to average 15% to 25.
Calendar year.
In addition, we are expecting our where to buy our solutions platform to deliver another year of solid growth as we continue to evolve the carbohydrate solutions business.
Putting it all together, we expect carbohydrate solutions to deliver full year operating profit.
Likely lower than they are at a standing 2021.
In nutrition, we are expecting continued growth in demand for our unparalleled portfolio of nutritional ingredients and systems.
Along with the benefits of accretion from our recent acquisitions.
With these dynamics, we expect 15% plus percent op growth in 2022 revenue growth above 10%.
EBITDA margins above 20% in human nutrition.
High single digits, a 90 mile nutrition consistent with targets, we set out at our global Investor deck.
Slide 12 please.
So as we look forward in 2022, we see a positive demand environment across our portfolio.
And then we add to the things we can do better.
Our execution was great in 2021, but we are always identifying opportunities for improvement and we intend to do even more to meet this growing demand in 2022.
Put it all together and we are optimistic for another very strong performance in 2022.
We progress towards our strategic plans next earnings milestones.
$7 per share.
With that operator, please open the line for questions.
Thank you.
If you would like to ask a question today. Please press star followed by Wang from you kind of think he packs.
And if you change your mind today. Please press Star case relates to question. As a reminder is star followed by one to ask any questions today.
And our first question on the phone line comes from Dan <unk>.
Barclays. Sir Please go ahead.
Thank you very much and good morning, Andres Congrats on those very strong results.
Thank you Ben Thank you.
So to start off maybe just to stay a little bit within the outlook. I mean, clearly you continue to have a very positive view on the segment side, but could you also share a little bit your assumptions in terms of capex needs and where you think investment needs to be put into in order to deliver on the <unk>.
Supply of these zones, a little bit of your Capex program and how you feel about.
And ultimately the results flowing down to net income and what your expectations are for 2022.
Yes.
So many many questions so <unk> Westphalia with Joe.
Okay.
On a capex perspective.
As you look at our strategic plan.
Most of our strategic plan is coming from organic growth.
And productivity so in order to fund that.
We can have a little bit higher capex this year of about $1 $3 billion.
That will be of course in some of the projects, we need to do to expand like that.
We announced our JV with Vodafone.
But also again some productivity enhancements to make sure we deliver bigger volumes us we supply that demand.
As you know.
We are facing 2022 with a very strong perspective for the first quarter. We are entering the year with great momentum as we lift.
As we left 2021 also.
In the big in the Big Sky.
So.
At this point in time, we continue to see a very strong 2022, and I think I described it in my comments Wf services analysis continues to be firing in all cylinders and we expect the year as good as last year or maybe even better.
Solutions also growing very strong with many.
With a very stable starches and sweeteners.
With the oil with some uncertainty on ethanol, but with a favorable environment salute.
<unk> solutions continues to grow.
We grew last year, and again nutrition going up above 15% per year operating profit growth on a double digit revenue growth.
All in all we feel very good about all the things that we can control.
Okay perfect. Thank you very much and then just one last question just a quick one if you think about your medium term targets and I remember you've laid out obviously as well the initiatives for share buybacks et cetera, but in light at the higher Capex plus the increase.
And dividend fair to assume that share buybacks at least in the short term arent going to be a priority to get correct.
Yes, I think that the priorities for capital allocation is to delever their shafts.
Maybe a couple of billion dollars invested in acquisitions.
Currently fund the projects that we have in higher Capex as I described and then the dividend to support the dividend of course cash flow generation is strong and Adrian you know we focus a lot on that so as cash flow becomes available I mean, we are going to thinking.
The five year plan to have more.
More buybacks in the later periods, but if <unk> continues to be strong we might anticipate that the little bit at this point in time, we don't expect significant M&A as part of our plan so that will be the capital allocation decision.
Perfect very clear, thank you very much and congrats again.
Thank you Lynn.
Thank you Ben we now have the next question from.
Thank you Stephen Sorry. Please go ahead your line is open.
Hey, Thanks, good morning, and congrats on the strong quarter.
I want to say, thank you Dan a follow up on the outlook commentary, which was really helpful and detailed.
Of particular interest to us.
Bio products commentary that you offered I think within the carbohydrate solutions business the commentary around purchase and sweeteners makes sense. The bio products, obviously benefited from a very strong fourth quarter.
And.
Perhaps you had an opportunity to <unk>.
Secure margins and for the first quarter.
But the commentary is.
Pretty positive through the balance of the year and I realize higher production will help and benefiting operating profit for that business can you talk a little bit about what informs your view for the strength of.
The ethanol business sustaining into 2022.
Hey, Dan Good morning, it's Ray here.
Yes, we finished up very strong in.
The bioprocess business ethanol, specifically the fourth quarter demand environment was very very constructive and I think thats just reflective of what was happening in terms of the recovery.
Driving miles in the United States. The holiday season gasoline demand was strong best translates to strong demand for ethanol.
And on the supply side and actually the industry had some supply challenges and so that translated to a very robust environment. In fact, our EBITDA margins in the fourth quarter for our ethanol business were above a dollar a gallon, which is which is very very.
On a historical basis is very very strong.
We indicate that as we go into 2022, we feel optimistic about ethanol as well.
Now while inventories have built up a little bit in January and Thats, just the seasonal nature of ethanol inventory builds.
A couple of things give us.
Optimism for 2022.
Number one we do expect domestic demand for ethanol to be strong in fact, it will be a growth year over year from 'twenty, one to 'twenty, two and frankly, we're seeing ethanol demand returning back to pre pandemic levels of demand here in United States. So if we're talking about domestic demand probably in the 14 billion.
<unk> gallon level.
Secondly, I think youre going to see a recovery around the world on on gasoline demand and hence ethanol demand as well and as you know with the movement in crude oil prices in general.
<unk> is becoming one of the most attractive oxygenate in the world.
So we do see the export demand side of the equation in 2022 being also very constructive for ethanol with with ethanol probably recovering to $1 40, and $1 5 billion gallons in terms of export demand.
It's very very constructive.
Thirdly, we do believe that the regulatory landscape.
Verified itself in the context of small refinery exemptions.
I know there is some challenges going on here, but what we see right now is.
Going forward.
Smaller fsrus as they call. It small refinery exemptions will not have an impact in terms of kind of like the supply demand balances and we talk internally that when you say 15 billion gallons. It means 15 billion gallons right in terms of what we need to deliver to the marketplace.
It's actually a positive also for our industry and then <unk> also remanded the about 250 million gallons in terms of requirements as well going forward.
So when you add it all together the fact that we're starting off the year with a fairly balanced supply demand.
<unk> in terms of the use of ethanol inventories.
To a demand environment, that's going to be even more constructive versus 2021 and.
And three a regulatory environment that seems to be supportive of where we want to go.
We're actually having constructed viewpoint.
As Juan indicated Directionally, we're assuming 15% to 25 per gallon as EBITDA margins for 2022.
That's lower than the 21 assumption and maybe we're just being a little bit conservative at this juncture as we start off the year, but nevertheless, we do believe that it should be a favorable environment for us as we move forward into 2022.
Okay. That's great very helpful. Thank you.
My second question is just related to the global operating environment and in particular.
Sure.
Some of the goings on in Ukraine at the moment intentions there.
Is that how is that manifesting itself today.
In terms of the impact to your business and then from an asset footprint perspective, you guys. Paul have super heavy exposure there, but there are major.
Producer of.
Right seed corn.
Wheat, barley, so I'm curious.
What impact you're seeing in the market today, and how you think about the potential impact as we look into 2022.
Okay.
A lot of different scenarios could play out there.
Yes.
Of course, you realize the supply of many commodities remain at their tightest levels in years.
So so I think any news around the world.
Disruption, whether it is whether a geopolitical.
Prolonged the high prices well into early 2023.
As you describe at this point in time that are three things. We're all looking at the development of crops in South America as they needed to go through February of range, especially in Argentina, and the harvest in Brazil, We're looking of course for us.
Geopolitical conflicts.
<unk>.
They won't do describe.
And also the expectations of the crop in the U S. All of these in the middle of a very strong demand. So.
As you said, Ukraine as the big explore third, especially if you think about core and the ability to supply China needs.
You have the three main main suppliers, where at least the U S.
And you have in Ukraine, and you have Brazil, so hopefully Brazil with this range, we will have a premium put out that this may be a little bit better than we expected but.
Among these three countries we need to cover.
The supply of corn and corn today.
One of the best sources of energy and fought out there one of the cheapest ones.
So it's a very demanded for outlet. So we're always paying attention to what happened with that.
Okay. Thank you one congrats on the quarter and best of luck into 2022.
Thank you Brian Thank you very much.
Thank you we now have kind of a question on the phone lines from Adam Samuelson with Goldman Sachs. Please go ahead, when you're ready.
Yes, Thank you and good morning, everyone.
Yes.
My first question is I want to come back to the outlook in carbohydrate solutions in <unk>.
Make sure Im understanding the moving pieces to think about our full year 2022 outlook.
Only slightly below 2021.
We're both your 'twenty to 'twenty one performances.
Above what you would have expected in 2025 for the unit.
And just trying to think about the moving pieces with ethanol and maybe Theres a clarification point on that when you talk about ethanol margins 15 to 25 cents a gallon EBITDA.
Is that purely the dry mill.
<unk> within vantage corn processors is that included in the wet mill.
And I guess.
That vein.
In the fourth quarter.
Given the strong ethanol margin environment, I guess I was surprised to have seen the starches and sweeteners business be down if that would have also been benefiting from a strong U S. Ethanol environment. So maybe just help us think about.
So some of the bridges of the pieces within the segment to get you to the 22 outlook.
Yeah, Adam it's Ray here. So it's a 15 to 25 EBITDA margin represents total ethanol wet and dry mills, so thats a combined basis.
On the on that assumption in the fourth quarter, we had.
You saw an outstanding quarter, DCP really benefited from the ethanol margins.
Nearly <unk>.
<unk> also benefit as well on the ethanol side of the business.
R.
Our net corn cost with a little bit higher in the fourth quarter for starches and sweeteners.
Paul when we hedged when we hedge 2021 for corn.
Pointed out in a very attractive hedge position in 2024 for a lot of our 2021 requirements, but not all of the requirements and so when we got to the fourth quarter. I think we were a little bit more exposed on that corn and so therefore, the higher net corn cost translates maybe a little bit lower margin on the sweetener side of the business. There. We also had some odd.
Operating challenges with the startup of Bulgaria in Europe , which again this is an opportunity frankly speaking for us in 2022, right and we also had some higher energy costs over in Europe , as well as natural gas prices ran up significantly in the back part of the year, so that impacted our energy costs over in Europe and that flowed through in terms of.
Our starches and sweeteners segment. So there were a bunch of puts and takes that move through the fourth quarter.
Again, we think a law that will be behind us I think we've put yourself put in a good hedge position for 2022, and then also we believe that we've got.
<unk> project, we've addressed a lot of those issues and that should be a plus delta for us.
'twenty two as well.
Okay.
Really helpful and if I could just switch gears over to the nutrition segment.
And maybe.
Help us think a little bit about the expectations for the business on an organic basis in 2022, and then there was a.
You did some M&A through the second half of.
2021, so you've talked to 10% plus revenue growth and 15% of gross profit growth.
Can you help us think about the.
M&A contributions.
Within that.
And any specific parts of the business.
You might be more optimistic than the segment average and areas, where the where the growth.
Might be a little below that.
Yes so.
I think most most of 2022 will be granted.
Basically if you will the contribution of sales of.
Of the acquisitions.
It's going to happen.
A little bit later this acquisition, so I'll not made to be honest.
I'm pretty sure of doing it when they do.
Recall, we are just building the nutrition business. So this is the strategic importance of positioning ourselves in the areas, where we've been we've been informing you I think that we always like to have the policy of no surprises and I think you heard me, saying telephone wellness is an area, where we were going to invest in that.
We did deal in pet food and that's where we did the design.
We continue to think about the incredible potential plant based proteins and definitely with you. So your protein which is.
Making us more international and I know I talked about how powerful we are in flavors, but we were under represented if you will in the emerging markets and Thats the way, we invested in capacity and being both flavors in China and we also acquired.
That gives us a beachhead into Central America cut even maybe northern parts of Latin America.
So.
When we look at the business and our confidence in the 15% plus.
Yes.
Operating profit growth is given by our pipeline and our win rates to be honest. That's what we look our pipeline continues to increase our product launches continues to increase and actually accelerated and our win rates.
<unk> almost doubled from one year together so the business is operating very well.
Guided flat for Q1, just because of the way.
Some of the costs fall.
Or more.
From front loaded into next year.
But this is a business again is being growing 34%, 20% I think we are going to stabilize in the long term at this rate of 15%, 15% plus with double double digit organic growth basically without even touching the M&A for a doctor.
Got it that's all really helpful. I'll pass it on thank you.
Thank you Ed.
Thank you we now have a question from.
Robert Moskow of Credit Suisse, Hey, Robert <unk> your.
Your line.
Hi, Thanks for the question and congrats on a great year.
Thanks Robert.
Of course, and maybe you've kind of implied this already but.
Youre pricing for corn sweeteners in 2022 and describe how the negotiations went.
And it looks like Youre guiding to was kind of flattish profits.
In North America for corn sweeteners that as a result of that pricing is that a fair assessment.
Yeah, Rob I mean, our objective is really to maintain margins and so through the course of the negotiations I think it's fair to make an assumption that we've been able to maintain margins.
Offset the higher higher corn costs.
<unk> heard recently, so I think we've achieved that objective and that's a fair assumption to assume as we go into 2022.
Okay, and maybe a follow up.
The.
Expansion.
Blind.
Soybean oil has driven.
By the by the growing demand.
Renewable biogas biodiesel have you been watching the industry the planned industry expansion for all of those refineries.
<unk>.
What kind of is.
Achieving what you would expect.
Alright.
The capacity coming online.
As expected and is it having the results on demand for oil that you would have expected.
Yes of course, we.
We keep a close eye into that.
You have to understand that.
At this point in time demand continues to outpace given the announced capacity expansions, but there is a reality also in this world of supply shortages in labor issues that.
Projects are not that easy to execute so I think that when you look at.
But there you have announcements like the way we've seen I think is reasonable to put the percentage.
That is going to happen either the reality.
They all going to happen, but in a little bit longer timeline. So we tend to look at that.
From a long term basis or maybe something like.
Sure.
Two thirds of 75% will happen at this point in time, we see the volume coming our way.
You have to remember that.
The original oil story Rob.
It was view too.
Palm oil around the world.
That drove soybean oil and also another always.
And now on top of that now we have the demand for <unk> so that.
Now there is a whole confluence of raw materials to be able to to.
To supply that oil and so.
So yes, we're looking at this pretty closely and at this point in time everything is the bold beat us plan.
Okay, alright, well thank you.
Youre welcome.
Thank you Robert we now have.
Tom Palmer of Jpmorgan, Sir Tom Your line is open. Please go ahead.
Good morning, Thank you for the questions.
Congratulations on the quarter.
Maybe I can follow up.
Maybe I can follow up on Rob's question, just on the refined products outlook and maybe a little more specific on how youre thinking about the setup for 2022.
You have kind of maybe the first larger wave of facilities coming online with pretreatment unit.
Although that is at.
At least back half weighted I think so.
Maybe what's the assumption for our refined products this year and do you think that.
That will that additional in terms of capacity is going to have much impact or as you were kind of noting the problem, maybe just with timing and kind of needs still.
<unk>.
A portion from third parties it won't be as impactful.
Sure.
Sure.
Yes listen.
We continue to believe we will add around 1 billion gallons per year of incremental R&D RGD capacities and approach that 5 billion gallon filter capacity by 2025.
And as I was telling Rob we continually risks around the announced capacity.
Analyze the market conditions, so we have several scenarios.
We do believe this.
Announced capacity.
Our important to unnecessarily to keep up with the expected demand growth for both specialty below as I explained before but also global meal demand needs.
And at this point vegetable oil consumption still growing faster than supply.
We got them a little bit of good news from the Sun oil availability from the Black Sea that maybe will help.
Bean oil guidance.
<unk>.
So.
Regarding the <unk> comments in the in the vegetable oils will be required at the fifth spoken.
Pricing will reflect the value of this system.
Likely based on carbon intensity, so we could see some shift in value between the crude oil in the refining.
I think what we need to realize it.
Early stages of this industry formation, so we're going to see some of the movements and sometimes we're going to capture the value in one place sometimes within a customer advisory and another one but.
We are well position our biodiesel plants are all integrated in refineries and all of that so.
So we are watching it very closely we feel good about how we're developing so far.
Great. Thank you for that and maybe I'll segue.
Add to the crushing side.
It seems like.
We're starting off the year with with quite strong soy crush margins, perhaps higher than maybe you're guiding Q4 the year.
Is there a.
I guess catalyst.
Or driver that maybe makes margins weaker or is there a bit of conservatism embedded as we see headlines around licensing short edge and is that something you are.
Expecting to kind of resolve itself and maybe see still a very favorable crush environment, but a little more normalized versus to start off the year.
Yes.
There are many of course it is a large industry. So many puts and takes.
When we look at the demand side.
The forecasted 2022 poultry production.
Just going to be a record.
EMEA of restaurants for beef and hog so protein demand continues to grow.
But around the world.
Staying in <unk>.
There is a dive meat proteins.
Critics amino acids.
That support and soybean meal remember I mentioned.
Five is very expensive today.
NRG as well so core.
At this point in time.
The cheapest carbohydrate that's pulling soybean meal into the Russian.
And.
We expect that the one point in time the licensing market.
Maybe back into balance later in 2022.
But the steel.
And these are very beneficial to soybean meal to crush so.
I think also don't forget RGD. This also.
Change in the dynamics for soybean meal, making soybean meal from the U S much more competitive.
Enable to gain some export markets and when you have maybe a less than stellar soybean crop in Argentina, Argentina being such a strong exporter of Neal I think that bodes well for crush margins in North America and also Europe .
Thank you.
Okay.
We now have the next question from Vincent Andrews with Morgan Stanley 's presence.
Please ensure your line is on mute lately and you May go ahead.
Okay.
Hi, this is <unk>.
Steve Haynes on for Vincent.
I wanted to ask a question on the bio solutions business in the $100 million.
Annualized revenue in 2021.
And if you could maybe just provide some more color on specific end markets, where youre getting those wins and then how to think about the size of that going forward.
Yes. Thank you for the question.
Okay.
Im very excited about how that business is developing I think we are recognizing the fact that that business up and almost like we were not working with the customer pool more than our push and now we have a segment approach that we have intentionality and developing that market in that sub.
The opportunity Scott fluids, I would say this.
Strong contribution from packaging.
A strong contribution from presentation, just helping other people that are creating some of these materials out of plant based.
Personal and home care very important segment that is growing.
And a growing contribution from pharma construction plant treatment. So as you can tell as we continue to deploy marketing resources into some of the segments. We continue to have.
So there are some segments that are more develop a larger for us in some segments that are more incipient but.
I think it is going very well we are working on the product mix us sometime.
Sometimes the growth is faster than our capacity. So we're trying to accommodate that.
We're going to be having more capacity coming up soon to be able to sustain these 10% gross growth.
The growth rate for revenue.
Sure.
Thank you.
Sure.
Thank you Vincent we now have.
Ken Zaslow with BMO capital market. Jason. Please go ahead can you maybe Ken.
Hey, good morning, everyone.
Good morning, Ken Hey, Ken.
Let me just take a different approach.
Think about your you talked about all the things that are happening on the demand side.
Sure.
They kind of did talk about the cost structure.
Increasing and that there was going to be some headwinds as I look forward. These headwinds don't seem to be materializing to the extent or are they.
Can you frame, how you kind of put it during the analyst day, and we see they are going through to that what are you seeing now.
2022, and are you really clean and develop the way you thought they were or are they a little bit lower than you thought.
Yes.
The dynamics here.
Of course.
Yes.
We have.
We have forecasted or accounted for some potential reversion of margins on some inflation of course that we were going to come in.
That is difficult to estimate the timing and then we've got productivity and innovation.
He is going to be growing in there in some of these projects to develop so when we looked at if you will the negative side of the equation. The positive side. We can control are the negative side, we've put together several scenarios and.
I would say the biggest manifestation of that at this point in time for US has been energy inflation and inflation form some smaller products.
We suffered probably more of these.
Some supply chain disruptions and labor shortages that you'd probably see every company is talking about I would say.
From an energy perspective, the impact is probably more on Europe , where there is on crash or color solutions, that's where we see.
And we have our team basically working on energy efficiency and shaving some some percentages of that increase.
So our hedging mechanism on all of them.
On the on the raw material side and the supply chain disruption, that's probably more the federal authority of nutrition and nutrition that you can imagine come more variety of raw materials.
More skus so the complexity of that business makes it more exposed to some of these wins. So that's the way we're looking at that as more of the European.
Energy.
The increase in <unk>.
Some of them nutrition, one offs here and their own supply chain.
My second question is.
With that.
On the China side.
I think last call on the call before you kind of outlined how demand is growing I know 2021 was an extraordinary year for China demand.
How do you think that's going to play out in 2022 and 2023.
In terms of.
Will there be a mix change will there be increased demand how do you kind of thinking about it relative to your business model and I. Appreciate your time as always.
Yes, Thank you Ken.
We think that.
<unk>.
China has recovered from the ASF recovered there you saw the dynamics in terms of prices.
Coming up and down.
We still believe that they will import some.
It will mean for soybeans in the high nineties.
<unk> hundred $87 million give or take.
And around <unk> 25 million tons of coal.
Again, when we're working the way they are managing through these challenges, but we expect demand will continue to grow.
It continued to be supported by improved diets.
And professional feeding practices, even if we see some moderation of GDP, we think that.
Sure.
We've seen per capita consumption of the top four basically.
Increases in even if.
They corrected a little bit the correct versus 2021, they are still much bigger than then.
<unk> from pre pandemic.
We completed with the numbers here or there, but still it's going to be very strong and as I said, probably in 80 $687 million of soybeans could be $5 million of core that will provide a good.
A good base for the grain industry of the crushing.
Okay.
Great I appreciate it thank you guys.
Thank you Kate.
Thank you Ken will now have a question from Ben <unk> from Baird. Please.
Please go ahead, when you're ready alright.
Hi, good morning, everyone and thanks for taking my question.
You touched on the regulatory environment, just with your ethanol comments, where maybe it's just on a broader level just maybe around renewable diesel if you guys could talk about that.
And then on the Legislative front as you know I hate to ask.
Best guess, but how.
How you see maybe the blenders tax credit tomorrow, and they need to go ground aviation fuel evolving. Thank you.
Yes.
Yes.
Biodiesel as you know the current blenders credit continues until the end of 2020 to December 31 2022.
So we're actually we're looking at what's happening on the legislative agenda in Washington on the BBB program to see whether it gets renewed but historically what you've seen is the.
Both frankly, both parties are supportive of the biodiesel industry. It is important for United States. So even if something doesn't occur on BBB, we're optimistic that the blenders credit will get extended in one way or another through some form of ALS.
Legislation as we kind of move through the year and if you call sometimes it happens after you get through the end of the year and then you have a retroactive biodiesel tax credit, which we've seen in the past. So we actually feel confident that something will occur there in order to kind of continue with the blenders credit on the biodiesel tax credit.
On the SaaS front as you know.
This is something that we're working on right now with different partners.
It is going to be an important part of the fuel industry in the future as vehicle Green in terms of aviation fuel. So just based upon frankly again the support we see in terms of the direction of FSA, we're optimistic that some form of legislative.
Yes.
Some form of legislative.
Yes.
Actions to be taken to support the sustainable aviation fuel Saf industry.
And again, it's a nascent industry right now very few gallons are being produced but projections show that by 2030, there's going to be a need for about 4 billion gallons of sustainable aviation fuel and combination of the United States and Europe . So, it's a significant growth industry and.
Probably there is going to be some level of support required in order to startup is industry here.
And then just on the road.
Renewable diesel trucks.
Can you just talk about any areas you are watching it we talked about the supply side.
Account.
These are new.
Production facilities come on line, but could you talk about.
<unk> side, and where you are seeing incremental demand coming from the <unk>.
So we already know out there new regions. Thank you.
Interesting.
Now let me the demand side, it's really driven by the different states implementing low carbon fuel standards they'll CFS standards.
Starting out in the west, but frankly, it's going to get extended across all of the United States and Canada. So the demand side is there.
All of the states move towards.
<unk> standards and frankly, the industry is simply trying to respond to that demand by building the supply to meet that particular requirement there.
Great. Thank you.
Thank you.
Hi.
Question from Steve Byrne from Bank of America.
Please go ahead your line.
Yes. Thank you.
Do you think that soybean oil will represent the majority of the feedstock for this 5 billion gallons of renewable diesel.
It's going to represent an important part of it.
As demand grows for our renewable green diesel is going to require the poll for many sorts of feedstocks and in fact, it is very likely that even canola oil will find a pathway eventually to become part of our feedstock for renewable green diesel.
But we still believe that maybe about 45% of the production will come from soybean oil eventually small production out of the canola oil.
So it is it is going to be an important component because theres just a sufficient amount of let's say used cooking oil and other types of feedstock fast and rendering theres just not enough supply in order to meet this growing demand.
Leaving your 45% is 30 million acres of incremental soybeans, which I don't think its going to happen does that mean soybean exports get squeezed out and instead it gets crushed.
Oil goes into R&D and you export the meal.
We've indicated we believe that a lot of U S. Soybean oil exports will actually come down.
I think there is going to be a diversion.
Ways from exports of soybean oil.
Also be some some diversions away from eating food applications, there's going to be a daisy chain effect that goes on which frankly is actually supportive for the entire vegetable oil complex around the world right. So I think there is going to be some daisy chain effects that are going on in order to kind of meet this type of demand.
And then what about your slide 15, where you show.
Forward sales by farmers in South America are being below historical averages do you attribute that to.
The uncertainty that they are seeing with their current crop just just from either drug or excessive rain.
Yes.
And oilseed production is lower there.
In 2022, or the rest of the world for that matter.
That a net benefit to you and trading.
This is juan so what youre seeing from the farmer in South America is reflective of both things one is that correct.
Impacting South America, and the secondaries as Youll see they are looking at.
What's happened with the size of the crop.
In terms of whether it's beneficial for ADM or not our role is to try to fulfill our mission of providing nutrition around the world and that's where we use our supply chain to make sure that we deliver to our customers and we delivered to the populations around the world. So.
Sometimes we are going side with margin expansion in some parts of the business.
We may not we like the fact that there is a strong demand around the world and that tends to be good for Raytheon.
Thank you.
Youre welcome.
Thank you we now have our next question from Michael <unk> with Cleveland Research Michael. Please go ahead.
Yes. Good morning, just wanted to sort of get your take on kind of the current transportation system in the outlook. It supports both in New Orleans are we fully recovered from the Hurricanes and then kind of the barge system and what's happening over in the ports in China.
What sort of the backup business business kind of flowing normally on a backdrop of it.
Yes, Michael good question.
Talk about let's talk about China.
Some slides COVID-19 related challenges in China are impacting <unk>.
To be honest situations have improved initially we got the highlights but.
In general <unk> situation continues to improve and maybe we have average rates in about two or three days.
For bulk cargo in agriculture, and most main ports. So I would say China is kind of okay.
We've seen.
We've seen lineups.
The mortgage time, increasing in Brazil, they are still votes XP.
Exporting corn and importance of fertilizers.
Since the soybean crop is a little bit delayed.
We're seeing more we're seeing waiting times kind of doubled from maybe 15 days to 30 days in Brazil, and that's pushing some volume from North America or maybe March April deliveries North America export capacity has recovered.
The most part I think there is one plant that was going to have some long term or medium term. If you will requirements, but for the most part the export capacity has been recovered to pre Ida level at least for us and I would say in terms of the river daily North River.
There is a lot of freezing and there is a lot of icy conditions that have slowed down the river movement.
And we see that and that probably will happen will continue.
Great. That's helpful and then just as a follow up.
Elevation margin outlook as you guys kind of see it for the year. Thanks.
We've seen.
Sure.
As you know we have.
The impact of either into Q4, we had the demand, but where do you think have the ability to supply. So a lot of that volume was.
Our move into Q1, and we have seen the elevation margins increasing in Q1.
So.
A little bit up as expected.
So we feel good about how to satisfy that demand.
Thank you.
Youre welcome.
Okay.
Thank you our last question comes from Eric.
Seaport Research partners Sir Please go ahead.
Yes. Thank you. Thank for squeezing me in everybody congrats on a great quarter, great year everyone.
So I know this has kind of been beaten to death.
And it's obviously, it's very important so.
It's again on the renewable if you just take renewable green diesel market.
If you just look at the amount of.
On feedstock that's required to meet to kind of get to that 2025 goal year goal of 5 billion gallons.
And I think it was alluded to earlier with that 45% comment it's $30 million 30 million acres of increased.
The equivalent of 30 million acres of soybean production, which just isn't going to happen. So.
And I'm sure I know that Greg and Chris are all over this.
Doesn't it.
It's got to be it is a global market. It will be doesn't this just feed right into the year.
And the very positive long term outlook for for AG services that youre going to have to be able to.
Globally a lot of.
A lot of resources in to meet these demand functions, but that's what makes it possible is that a is that the way to look at this.
Yes, I think when you have one explosion of demand in one place of the world resources from around the World will come and as Ray was saying, maybe we're going to export less.
Certainly we made important more and theyre going to be shift between the different products.
So I would say we continue to be.
In a world that requires more food.
And also.
That requires to help the environment, because being a structural change in demand for us and for our company that have assets around that around the world that probably means better utilization of those subsets and better value of those assets as we try to solve these issues yes.
Good well thanks.
So the final question I have a lot of those have been answered already so when you when we look at the current year in terms of U S crop production.
What are you hearing from your pharma clients.
Obviously, it looks like we're putting a bid in the corn market today to get more corn production. There is a lot of uncertainty with input costs in all of the other one.
What is your field force.
<unk>.
And it's early but it's not so early anymore, it's getting closer to the time, where you feel on how.
The crop production outlook looks for this year kind of by my crop.
Yes, we expect a strong U S planting.
Of course, some of those decisions as you said is it getting the time to make those decisions on a lot of people are looking at the South American weather.
With American weather.
It is.
It's a very strange at the moment there is very good.
Conditions in pattern or the south of Brazil, maybe Argentina.
<unk>.
It was a little bit too wet in the north.
Number is in the north are coming in strong.
In terms of yield for Brazil.
Think that the recent rains have stopped the deterioration of the crop in Argentina.
Out of Brazil.
The property was bought out why having.
<unk> already felt the damage so we.
We believe in the U S.
We still believe that.
Probably.
Sure.
Base soybeans in terms of acres, so we probably think about.
No something like 93 million acres.
Of corn 87 million acres of soybeans give or take.
I understand the dynamics of both fertilizer and all of that but I think given the price itself last year I think.
Prime land, we'll probably maintain.
Maintain the same mix.
Yeah, No I would agree with you. Thank you one and.
Again, congratulations on a great year.
Thank you thank you Eric.
Yes.
Thank you I would like to highlight that JJ color later for some closing remarks.
Thank you Britta. Thank you for joining us today slide 13 notes upcoming investor events in which we will be participating as always please feel free to follow up with me. If you have any other questions have a great day and thanks for your time and interest in media.
Thank you everyone for joining that does conclude today's call. You may disconnect your lines and have a lovely day.
[music].
Okay.
Yes.
Okay.