Q1 2022 Andersons Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the Andersons 2022 first quarter earnings Conference call. My name is Matthew and I will be your coordinator for today at this time all participants are in a listen only mode. Later, we will facilitate a question and answer session to ask a question you May Press Star then one on <unk>.
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Thanks, Matthew Good morning, everyone and thank you for joining us for the Andersons first quarter 2022 earnings call.
We're viewing this presentation via our webcast the slides and commentary will be in sync.
This webcast is being recorded and the recording and the supporting.
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Please direct your attention to the disclosure statement on slide two of the presentation as well as the disclaimers in our press release related to forward looking statements.
Certain information discussed today constitutes forward looking statements that reflect the company's.
Current views with respect to future events financial performance and industry conditions.
Forward looking statements are subject to various risks and uncertainties.
Yeah.
Pardon me, ladies and gentlemen, it appears that we have connect where having connection as cheese to our speaker line. Please standby as we travel shape. Thanks.
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Pardon me, ladies and gentlemen, it appears that we have reconnected our speaker line.
Mr. Walter Please forget please proceed with your conference.
Thanks, Matt I apologize for the technical difficulty experienced.
We're going to just start over from the beginning.
Thank you for joining us for the Andersons first quarter 2022 earnings call. We have provided a slide presentation that will enhance today's discussion.
If you're viewing this presentation via our webcast the slides and commentary will be in sync. This webcast is being recorded and the recording and the supporting slides will be made available on the investors page of our website at Andersons, Inc. Dot com shortly.
Please direct your attention to the disclosure statement on slide two of the presentation as well as the disclaimers in our press release related to forward looking statements certain information discussed today constitutes forward looking statements that reflect the company's current views with respect to future events financial performance and industry conditions. These.
Forward looking statements are subject to various risks and uncertainties actual results could differ materially as a result of many factors, which are described in the company's reports on file with the SEC. We encourage you to review. These factors. 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, we'll be happy to take your questions I will now turn the call over to Pat.
Thank you, Mike and good morning, everyone.
Thank you for joining our call. This morning to review our first quarter results.
We're saddened by the news and images coming from the War zone.
And our thoughts and prayers remain with the people of Ukraine, and those who have family impacted by this unfortunate conflicts.
Global AG markets in the first quarter were significantly impacted by the war in Ukraine, We saw an extreme run up in grain futures prices, which also drove basis five years lower.
Global fertilizer suppliers remain tight with prices up further due to the conflict in Ukraine.
I'm very proud of our team for managing through these resulting unprecedented price volatility and logistical challenges, while maintaining focus on serving our customers.
Our trade group results declined from last year in large part due to the decline in corn and soybean basis values.
Well, our inventories needed to be reduced to mark These lower base as far as the market. We want to note that this pricing environment has allowed our teams to enter into new ownership positions and improve basis values.
This we believe will position us well for the remainder of this year and into 2023 as these are historically good ownership values.
Last year, we accumulated solid week positions in our Midwest grain assets.
They will provide storage income moving forward.
Growth in our international supply chain business contributed to our results in spite of the impact of Ukraine War on supply and logistics.
Our renewables segment performed well in the quarter ethanol Board crush margins were improved from the first quarter of last year and higher commodity prices kept feed in Cornwall values high.
Third party merchandising of low Ci renewable feedstocks and other co products was up significantly from the first quarter of 2021 as that business continues to grow.
Our results also include an $8 3 million dollar mark to market hedge loss, most of which is expected to reverse in the second quarter.
We've now completed our spring maintenance shutdowns and all ethanol was on all of our five ethanol facilities and we're well positioned to meet the seasonal increase in driving demand.
But nutrient reported a record first quarter.
Our strong results reflect well positioned inventory and there's much high priced unlimited supply market.
Improved margins more than offset lower volumes across most product lines.
I also wanted to provide a brief update on the divestiture of our rail repair business. You may have seen our announcement last night on the sale of this business to Cathcart.
With this transaction expecting to close this summer it will finalize our previously announced strategic exit from the rail segment with a larger rail leasing business sell clothing back in August .
I'm now going to turn things over to Brian to cover some key financial data when he's finished I'll be back to discuss our outlook for the balance of 2022 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 2022, the company reported net income attributable to the Andersons from continuing operations of $6 $1 million or <unk> 18 cents per diluted share.
This compares to $12 million or 36 cents per diluted share in the first quarter of 2021.
As Pat mentioned plant nutrient and renewables had strong first quarter results offset by a decline in the trade groups year over year results.
EBITDA for the first quarter of 2022 was $55 $8 million compared to adjusted EBITDA of $63 $2 million in the first quarter of 2021.
Both of these measures exclude discontinued operations.
We recorded Texas for the quarter at an effective rate of 38, 7%, which reflects the impact of non deductible mark to market losses, and the tax treatment of Noncontrolling interests.
While this rate is higher this quarter, we are still forecasting our full year effective tax rate between 22 and 25%.
Next we'll move to slide six to discuss cash liquidity and debt.
We generated quarterly cash flow from operations before changes in working capital of $40 million in 2022 compared to $89 million in 2021.
The majority of the difference relates to the timing of tax refunds and credits.
Futures price inflation in the grain markets is the primary cause of our significant increasing working capital and related short term borrowing levels.
The short term debt balance of $1 5 billion at March 31st is supported by readily market.
Readily marketable inventories of $1 $4 billion and cash margin deposits of $400 million.
In order to manage through these rising commodity prices, we amended and extended our short term borrowing agreements with committed capacity of $2 $1 billion.
We have strong support from our banks and continue to proactively monitor our liquidity.
We also continue to take a disciplined approach to capital spending, which we expect to be roughly $100 million to $125 million for the year about half of which we expect will be related to maintenance capital.
As we've previously noted we have reduced long term debt by over $300 million over the last 12 months and remain well below our stated long term debt to EBITDA target of less than two and a half times.
With the stronger balance sheet, we are well positioned to invest in our core agricultural businesses.
Now I will move onto a review of each of our businesses beginning with trade on slide seven.
Trade reported pretax income of $3 $7 million compared to adjusted pre tax income of $14 $3 million in the same period of 2021.
The significant run up in commodity prices, resulting from the conflict in Ukraine, and the smaller South American crop caused a dramatic drop in basis values, primarily in corn and soybeans.
While the lower basis values allowed us to buy new bushels at favorable basis levels existing domestic positions experienced large basis reductions, which impacted first quarter results.
We also experienced a decline of approximately $4 million and our propane merchandising business that business continues to perform well. However, the extreme cold in February of 2021 that impacted much of the Midwest and Texas allowed for very strong returns in the first quarter of last year.
Trades EBITA for the quarter was $28 million compared to adjusted EBITDA of $32 $5 million in the first quarter of 2021.
Yeah.
Moving to slide eight.
Renewables first quarter pretax income attributable to the company of $5 $5 million was up $2 $6 million compared to the first quarter of 2021.
While the first quarter experiences lower winter driving demand board crush margins were higher than the prior period.
We also continue to see strong co product values, including high protein feed distillers corn oil in D. D. G's to contributed to increased gross profit.
Third party ethanol feed and renewable diesel feedstock merchandising results were more than double the 2021 results.
The group's results also included Mark to market losses of $8 $3 million in the quarter nearly all of which is expected to reverse in the second quarter.
Ethanol recorded EBITA of $24 $4 million in the first quarter of 2022, an increase of 10% from the first quarter of last year.
Turning to slide nine.
Nutrient business recorded record pretax income of $10 $7 million in the first quarter up from $8 $5 million in the first quarter of 2021.
Continuing the story from last year, well positioned inventory led to improved margin per ton in our agricultural product lines and in particular for our specialty liquid products.
Fertilizer prices have also continued to rise due to the conflict in Ukraine.
Our turf and specialty business continues to be challenged by supply chain difficulties inflation in raw materials and labor constraints.
Plant nutrients EBITA for the first quarter was $18 $8 million, an increase from $16 million in the first quarter of 2021.
And with that I'll turn things back over to Pat for some comments about our 2022 outlook.
Thanks, Brian .
While our first quarter overall financial results did not meet our strong performance of 'twenty 'twenty. One we continue to believe that our agricultural business outlook remains strong.
We were anticipating elevated commodity prices for some time due to the relatively low worldwide stocks, but with the disruptions and the Black Sea region and the smaller South American crop, we expect demand to stay high into 2023 and beyond.
Blended across the country has started slowly and its currently a week behind the five year National average, it's been wet across the Midwest This week and.
And we do know that farmers are anxious to get into their fields as soon as they can we expect them to ramp up activities quickly when possible.
Fundamentals in the grain business continue to remain positive.
<unk> supplies are projected to be tight into the foreseeable future and we're very pleased with our ownership positions at good values.
Storage income opportunity has returned to wheat.
And we're able to accumulate large wheat inventories with the expectations for reduced supply from Ukraine.
U S fall harvest will reduce but not eliminate the impact of strong worldwide demand on all primary crops.
With these markets and at this time of year, we're very focused on monitoring the impact of the suffering of harvest in Brazil, and the planting progress and growing conditions in the U S.
As always we are working to support our farmer customers with their grain marketing plans.
And ethanol gasoline demand has improved but has not yet returned to the pre pandemic levels Board crush margins have recently moved favorably for the second and third quarters of this year.
U S ethanol stocks remain fairly high despite the spring shutdown season, but are expected to decline on growing seasonal domestic and export demand.
The strong demand and good values for co products continues to support our overall margins.
In addition, our low Ci renewable diesel feedstock merchandising business is performing very well and adding to our results.
All five of our ethanol plants have now completed their spring shutdown successfully and are ready to meet the increased summer driving demand.
Two of our facilities are operating successful high protein feed product lines, and marking them to a wide array of customers.
We expect plant nutrient to continue to perform very well through the spring planting season.
An ongoing period of tight supply and high market prices.
We received good support from our North American suppliers and continue to have inventories in position for the spring application season.
We have seen a reduction in fertilizer volumes in the first quarter, but it's been more than offset by increased margins supported by high commodity prices and strong farmer income.
With a positive nearby outlook for AG market fundamentals were excited about our prospects for growth, particularly in sustainable opportunities.
We remain committed to adding value for our customers managing risk and operating safely and effectively.
And I'd like to turn to slide 11 about our investment thesis.
We introduced our refreshed strategy last year and are continuing to focus on both grain and fertilizer growth projects.
We mentioned this again today as we're working on our growth pipeline, which includes both organic projects as well as potential acquisitions that are within and adjacent to our current position in the U S AG supply chain.
Examples from this past year include our growing renewable diesel feedstock business, our purchase of capstone commodities and the dairy feed supply business and our grain supply chain extension to Africa, and the middle East.
The Andersons play a key role in the AG supply chain servicing customers from farm to fork, we'd like to draw your attention to our recently published 2022 sustainability review.
A copy of which is on our recently refreshed website.
We are firmly entrenched in the U S AG supply chain and see many opportunities to continue to grow.
With our focus on our two trees symbolized on this piece of paper or strategic verticals stronger balance sheet sustainable cash flow and tighter strategic focus we expect to be able to grow profitably in this exciting AG economy.
With that I'd like to hand, the call back to Matt and we'll be able to entertain your questions.
Okay.
Thank you we will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys.
If at any time your question, that's been addressed and you'd like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble our.
And our first question will come from Ben B N venue with Stephens. Please go ahead.
Hey, Thanks, good morning, everybody.
Good morning, Ben.
So I wanted to start with my first question on the trade business. So obviously, we had a sharply rising market you talked about some of the basis positions that basis value changes that hit.
Your numbers in the first quarter you characterized that as.
Putting yourselves in a good position.
Relative to where prices have gone heading into the next several quarters. Yeah. I think this business is inherently difficult to them.
Model N track from the outside.
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Can you help us think about relative to <unk>.
Maybe the underperformance versus what we would've expected in the first quarter.
Do you think the positions that you have in place through the next couple of quarters position you too.
Deliver similar results to last year make up for some of what you might have lost in the first quarter and maybe just help us make sense of that.
Stock is making a pretty severe reaction to the news today.
Really in the sense that like maybe the earnings power has changed all of a sudden it doesn't seem like it has and so I'm curious could you try to dimensionalize for us.
Are we just on the same track and there were some short term dynamics in the first quarter associated with the sharp move in and grain markets.
And what we should be thinking about as we move through the next several quarters.
Sure Brandon that's a very good question a lot of pieces to unpack there first of all yes, I'm very surprised with the market action of this morning, because we had a record quarter in our fertilizer business, a strong profitable quarter in ethanol, where others, maybe didn't quite do as well in the industry. We had a very good quarter in ethanol.
And in grain when you have a high flat price commodities price spike like that its quite normal to see basis levels weaken.
That's a bad thing when you have to mark to market, what you own the inventories you reduce that and you take that mark.
And we've done that and in the quarter is probably about $8 million to $10 million, but we are buying lower basis levels that have accumulated grain at historically good values. So we're basis traders and the benefit of our business is to buy discounted basis levels that you can then elevate later and ship them and then they run.
<unk> demand market like we have this year so others in the industry also commented public companies about their timing differences or if you want to call. It basis depreciation. This is a good thing. So there is an opportunity to get ownership on when futures prices Spike and farmers sell and the basis weakened that's like we're buying at a better value so we'd see.
That is a very positive strategic sign for us that that will come back later in this year now kind of guarantee the date and time in months that its going to happen no, but that's historically very good ownership for us and we feel good about that and think that's puts us in a very strong position.
What's the export demand thats going to be solid and domestic demand there will be solid later in the year.
Another thing to think about is.
Just some of the lapping we had last year. So 2021 was our best year in 10 years, and we have some really strong performance in trade one of them was propane last winter had a very high.
Selling prices and probably were about $4 million to $5 million lower than what we had last year, it's still a profitable very good business, but not a spike it had in the first quarter last year, so that was a tough.
Matched to meet from 21 bottom line, we are very positive about where proposition positioned in the industry. We like the tailwind we have behind us and all of our segments.
And we just announced the sale of our rail shops that completed that final transaction in the rail segment. So we're in very good position strong balance sheet and feel very good about what's in front of us. So I think maybe it's just some overreaction this morning because of sensitivity with the commodity markets.
Yeah, Okay that makes good sense.
Maybe as a follow up.
The stock is now and I know, it's our job to think about what the stock is worth its your job to run the business and try to maximize cash flow in the business.
The stock is now trading at book value, which is really only done during the startup covet and during the great recession.
Your peers public peers are trading at two times book value.
You have a share repurchase program, you're generating plenty of cash I know there was working capital demands on the business short term, but when you think about rank ordering capital allocation and capital spending.
How do you think about where share repurchase fits within the set of opportunities that you have.
Yes, Ben this is Brian good question and it won't surprise you is something that we've been talking about ourselves. This morning. So you are correct, we have a program.
That is in place and we obviously have.
Closed windows in periods, when we're not able to purchase and then periods. When we're able to so I would say it is certainly one of the levers within our toolkit and something that we'll continue to evaluate closely.
Okay last question for me.
Ethanol margins industry ethanol margins have improved materially kind of heading into the second quarter do you have the ability to.
Lock in forward sell and secure margins have you done any of that just any color you can give us around your positioning on your ethanol business would be sure. We've always been hedging positions when we find opportunities to create value have done so for the second quarter earlier this year have done some on energy.
As well as corn. So we're in a good position, we think that the ethanol market is going to have a a nice finish will the fourth quarter of this year be as strong as it was in the fourth quarter of 'twenty. One this all happens to be about driving like what is the condition is going to look like for the balance of the year. We're optimistic it feels like it's in a good position.
And exports are starting to be more of a factor so.
<unk> is as low and can help the economy by blending lower cost ethanol into gasoline. So we think this is a good time for ethanol to really really shine here. This year. So we're well positioned our plants are all up from their shutdowns and co product values, both corn oil and feed has been very strong so.
How do we think ethanol is in a good position.
Okay, great. Thanks, so much best of luck.
Thank you.
Our next question will come from Ken Zaslow with Bank of Montreal. Please go ahead.
Hey, good morning, guys.
Good morning, Ken.
Not to beat a dead horse, but just wanted to clarify a few things. One is if you were to exclude the first quarter.
I would I would kind of go back to you know.
Three months ago. When you provided some sort of outlook for 2022 would you think you know the next three quarters would be any different based on what happened in this quarter.
So I don't think so Ken maybe a little bit better because of the grain ownership, we have and some of the carriers theyre coming into a weak market so that could pick up a little bit.
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I hate this time of the year, because we haven't planted corn in the ground.
This is such an important time for the U S crop to guess, what the fall harvest would be but in general we feel pretty good about all of our positions and where we're at in the market. So I would say, yes, I think those levels are a little higher.
And then just you know on the.
You said you compared yourself to the other companies out there that talk about the mark to market is.
It is a noncash item that happened or is it a cash item and I just wanted to you.
Or might be understanding what you were implying between you and your peers.
Yeah, just a grain merchants' U.
Just as Jim as the basis levels move so once you're hedged you're locked in on futures and then there's the base. It goes lower and a month, we bring a month down to that new basis levels. So the grain we own we had to mark down and then when it goes back up we market back up when we elevated and ship it.
And I Shouldnt talk about other companies what other companies mentioned that their public releases about timing differences related to that this is normal and soybean crush businesses, our grain elevation businesses.
And it's actually a good thing we look for times, where futures market Spike and then the basis weakens and you can accumulate at lower basis levels, We think thats a very good thing. Unfortunately causes a timing issue that the month that happens.
But it is a noncash item that I guess that.
You're comparing it to the base is not the mark to market on the crush margins is that does that make me indeed, correct and we're not in the soybean business. So we don't have a crush margin.
Okay.
Your inventory your marketing to a different level on the basis, each month, and we bring that out in the quarter quarterly results and that we feel will come back as we are.
Ship those products at higher basis levels later.
Okay, and then in terms of and Ken Ken on the and to your point on the ethanol one that is a noncash mark to market of those positions.
That we expect will Richard yes.
Separately.
Yes, Okay and then just the last part of my question is when I think about obviously, the tragedy of Ukraine and Russia.
You don't ever want it.
No benefit from it this quarter, obviously, you did but you know for the neck.
Year to two years is it extends the AG cycle, how does it play out to your results and how do you navigate and potentially <unk>.
Great Your earnings power from them or do I think of it more as more transitory that you'll.
You can have these good things and bad things that happen or is it more about a sustainable level of earnings.
No I think it is a sustainable level of earnings if anything it's probably extended it it's about a time issue so before without any.
Political disruption, maybe we could add mother nature come back in Brazil has a better crop next year and we have a better crop next year and then one to two years, you could've gotten to normal balance and F&B.
Now the supply and demand of global grain is out of balance and very tight and likely to extend past two crop years.
And so this this lets called rally that's happening in the AG markets is likely to continue longer.
Being a demand driven rally because of short supplies and other places of the world.
Very good prices for our U S farmers incentives for farmers globally to plant. So we should have volumes that AG companies can ship.
And with the economy.
It is even with higher interest rates demand is still strong for food products and global food demand. So we continue to have a very good fundamental basis across the AG sector and.
That should extend maybe longer because of this crisis. Unfortunately, however, the people in Ukraine, but it's going to have an impact that will linger a more than one one year one season.
Great.
Just making sure I understand this I'm sorry, just to go back to this point.
Matt you did not sell your green position or you were not forced out of your green positions right.
Oh of course.
Okay, I just want to make sure I. Appreciate it guys. Thank you no of course not effect at this time when we've had a rise in prices on the futures markets gives us the opportunity to accumulate grain inventories at lower basis levels that are fundamentally really good thing to do and we're really pleased to do that we have good positions a week. So we bought <unk>.
Last year, we're buying grain from our farmers when the market rallies, which is a good thing for us and a good thing for them, we're well positioned to take advantage of that going forward. So we like the position we're in.
Thank you guys.
Okay. Thank you.
Okay.
Our next question will come from Ben <unk> with Lake Street Capital markets. Please go ahead.
Alright, Thanks for taking my questions first that Pat just a quick follow up on the commentary just making on the inventory position on ER can you guys breakdown, especially on the trade group the.
Inventory position on a volume basis ending the quarter.
I'm not sure I understand your question, but.
We have our debt.
Tons in storage I mean, yes.
Yes, so our volume that we own is higher than last year same time of grain inventories and we're able to tap a retro sense at this time of year, there was better than previous time, but the point is back to marketing basis levels down that has good ownership that we can turnaround and elevate later, it's a good opportunity for us that's the point.
Okay got it got it.
Okay.
D is another.
Question in the kind of first quarter performance.
Within the trade group. The can you kind of characterize the performance within that group in the first part of the quarter versus the second half of the quarter.
When when the you know extreme volatility really sat in.
Curious if you could elaborate kind of on the trajectory that you think that business would have been in in mid February versus what the.
How the how the group ended the quarter.
Sure I think initially when the war broke up there was a little bit of a shock to the grain system, when wheat markets, particularly spiked and so we had to get back to a kind of a normal alignment and then as we got through the end of the quarter margins improved in our trading profits improve so kind of started I'd want to say its normalized because it's not normal at all but started to calm down a little bit.
Also we're able to sort out shipments that were on the water or not and how those things we're going to work out logistically, so we and others in the industry been able to navigate those challenges due to the war in Ukraine, and it's actually providing.
Volatility it is something we like in commodity markets and why I mentioned that it's getting back to that basis levels that gives us a chance to to buy at discounted values that we wouldn't have seen otherwise. So that's a very good thing for our business that flows right through to ethanol and into our other businesses again record quarter in for it.
Is there a good outlook in fertilizer strong quarter with a record EBITDA in our renewables business and that included an $8 3 million dollar mark to market that should come back in the next quarter. So we're very optimistic about our outlook.
Got it and one other one for me and then kind of related to that last comment, but the outwork and the optimism that you that you know what.
Clearly communicating here earlier in the call you talked about kind of the ability to potentially repeat the most recent fourth quarter performance in ethanol.
There's a lot going on in that segment and I'm wondering if you can kind of characterize your optimism.
And then into two buckets I mean to what degree is that optimism fueled by just kind of a general strength in the market with high value co products with strong ethanol margins in the current environment versus kind of an expanded organic capacity and.
You know greater.
The efforts on the renewable diesel side things of that nature, I mean, how much of that optimism is the state of the market versus your internal capabilities.
Yeah, that's very very good point out there that so again I'd say, we had a record setting EBITA for the quarter. Our Q1 crush margins were better than previous year and the margins have improved for Q2 include three as we start to ramp up into spring summer driving demand. So stocks are a little higher than in the market as you'd like to see them come.
After shutdown season, but export demand is strong and it looks like that's going to perform well this year the absolute value of ethanol as a blend for gasoline is.
Is there and now with <unk>.
Vitamins actions to help encourage <unk> usage, that's a help.
It's not a home run for the business, but that's going to help export demand is gonna help highs cornwell values are going to help and good feed buyers are going to help so in general there's a lot of positive tailwind in the ethanol industry.
I just was pointing out the fourth quarter of 'twenty, one at very high margins so to lap those in the fourth quarter might be a high bar to clear, but we think that ethanol margins will improve the balance of the year and have a nice earning period for 'twenty two.
Got it okay. That's all helpful commentary on I think that's a good place for me to leave it. Thanks for taking my questions I'll get back in queue.
Thank you.
Again, if you have a question. Please press Star then one our next question will come from Eric Larson with Seaport Research partners. Please go ahead.
Yeah. Good morning, everyone. Thanks for taking my questions. So.
Pat you talked a little bit about who.
We know about the shortfall in South American soybean production.
Now we're starting to hear.
Last week or two some and starting to see some estimates come down pretty sharply in kind of the central Brazilian Supreme are growing crop areas.
Which will not be offset by some a little bit better growing conditions in the southern part of the country, but.
Talk talk about that a little bit.
I don't think people are really focused on the south American saphena crop at this point and it looks like that could actually.
Give us reason to think that maybe corn prices and you have to go even higher so what are your thoughts on that.
Yeah, Good point out Eric and I know you watch us closely as a farmer the linear conditions caused shows.
Warmer drier conditions, especially as you pointed out the central Brazilian area, Mato Grosso going off in that area.
Alright, and our planet Oberland, Dia and mean us in that region is particularly can shift dry in a law anemia, a period, which is what we've seen there not a total drought, but just enough that we don't get maybe quite the finish to suffering near an end.
People know suffering as the little soft rather small harvests, which used to be little as the second harvest now it's just as big as the full harvest. So it's really important for our Brazilian production, so that could be stemmed a little bit and that is bodes well for U S soybean exports and corn and corn prices as you mentioned.
As you also know Eric or a little bit wet with his recent rains across the Midwest on Monday of the crop report was we'd be a week behind normal.
Not recover much because it's what we maybe get to 20 or 25% behind by next week, but as you all know American farmers are amazing and they can plant corn really fast. So it's too early to hit the panic button, it's likely that corn will get in as soon as we get to a dry patch would be nice to see good field progress.
For corn planting I think that's a key thing that the market is looking for now so that it's it's favorable to the U S. As you've said and now we just need to get the crop in the ground and make a good U S production.
So.
We've obviously seen a huge increase in not only future value for cash values for four global crops.
Are you seeing any are you seeing any signs of demand weakness I mean, there's a few things that we're seeing but it seems to be pretty minor.
You'd be a little bit from flu bird flu, a little 25 to 30 million bushels or something.
It seems like the demand.
The slower demand is minimal and are you talk to me about.
Are you seeing any demand issues yet.
No I think the big disruption a lot of is related to the black sea right. So countries that would normally be getting shipments from Ukraine or in some cases from Russia. These these are passive change to me even right away when wheat is coming out of the PNW. They go to other parts of the world or wouldn't normally go to we're seeing different traffic.
Patterns, but also remember that's on top of high Ocean freight already.
So the global prices. Unfortunately, the the poorest people on the planet are gonna be pain, food inflation, especially in Africa, but what we do see is we haven't turned off demand because protein markets are strong crush margins are very good ethanol markets. Our margins are there and then your beef pork chicken demand.
<unk> by consumers is still solid in North America, So north American demand for feeding and for our processing is still very good I mean, wheat milling was up 2% in the quarter. So theres good consistent demand domestically.
Domestically here and now you add on top of that these pockets of shortfall that Ukraine would normally fulfill that's disrupting the normal shipment patterns of exports in the U S is going to you know.
I'll take part of that China has been a little bit quiet here of late but we still see China being a very significant buyer of U S commodities.
So just one more demand question, we obviously have substantially higher fuel prices.
Going into this summer versus last and I know that a lot of people had transitioned to RV travel summer travel kind of really heavy gas usage type vehicles.
Do you think that there is you know.
That demand could actually softened for gasoline demand this summer.
So with ethanol the export side to be strong enough to maybe offset some domestic softness if gas prices are too high.
Yeah.
That's the million dollar question that we don't know I mean.
Well someone taken RV trip across the country, it's probably chipped cheaper than flying to.
Australia or something so.
The question is those numbers have shown improvement in recreational road travel over the road travel what hasn't returned to pre pandemic levels is the commute levels people going back to work full time in offices and is that going to start to pick up more as the COVID-19 concerns ease because that's the biggest part of driving.
Demand usages commuting so summer, where you think we will see the recreational travel you're seeing a return in aviation fuel travel so demand on that side should be pretty good unless gas prices really go back up again really strong there could mute demand, but we should see a pretty pretty good to me.
<unk>.
Just from driving miles on your question on ethanol exports, we see will be higher this year, where the lowest price oxygenate on the planet, we have good opportunities to export ethanol as an industry and we think exports will be up again, how much that will be depending on demand and some of those countries and what happens with <unk>.
<unk> freight et cetera, so outlook for ethanol it looks to be pretty good.
Like I said I cautioned about will it be as great as the margins really peaked in fourth quarter that would be a high bar, but if we got there we'd all be very happy.
Okay. Thanks, Pat So the final question I had was really for Brian .
So you guys were pretty aggressive in putting green positions on the in the first quarter, which makes a lot of sense to me.
What I am seeing does make great sense in terms of your future.
<unk> Valley.
Values that you can actually pull out of your trading business. When you look at your balance sheet.
If you saw other opportunities in the market today, how much further could you.
Could you bring up your short term I mean, what how much how much upside do you have to take advantage of market opportunities with your balance sheet.
Well I mean, as we sit today, we have about a half a billion dollars of available liquidity.
And as.
As you saw we amended and extended our credit agreements in the first quarter.
We continue to have really strong support from our from our bank group and our relationships because candidly to your point, Eric They understand our the key role that the Andersons plays in the North American AG supply chain and really that key function and so back to the whole point on readily marketable inventories and some of those.
<unk> calls a lot of that is.
Can be temporary and timing differences I think you also know we tend to see.
Sort of our peak borrowing in.
First second quarters, and then it'll start to taper as we get closer and closer to harvest. So I would say we feel good about our about our position to capitalize on opportunities as they as they are presented.
Feeling really good about having a real strong balance sheet not just to deal with short term borrowing but also being positioned for the growth projects that we're working on.
I think it's Eric even around about as long as I have and.
If you think about corn futures trading above $8. That's only happened 42 days in the long history of trading at the board of trade. The last time that happened was around fourth of July you'll remember back in 2012 during the middle of a severe drought.
And when it traded there numerous times, but when I started in the eighties corn was about 75 and under loan it didn't move a dime all year. So this is unprecedented to have these elevated prices for a long period of time, it's great for our growers and good for our industry.
There is a U S to supply these shortfalls in the global market. So this is a really good time for U S agriculture to kind of spread its wings and show what we can do so it's a great time for our industry, although it's volatile and prices are high. This is a really good thing.
Yeah, well corn prices.
Oil prices fall below three bucks, just not too long ago. So hum.
You talked about a Buck 75, we've had some pretty weak corn prices in the last couple of years to sell right.
Great.
It was a very volatile stuff.
Currency did you get your crops plant in Wisconsin, and Minnesota, Eric That'll make us happy.
We haven't put a seed in the ground yet.
Yeah.
So thanks guys.
Thank you Eric.
Yeah.
This concludes our question and answer session I would like to turn the conference back over to Mr. Mike culture for any closing remarks.
Thanks, Matthew we want to thank you all for joining US. This morning. Our next earnings conference call is scheduled for Wednesday August three 2022 at 11, a M. Eastern daylight time, when we will review our second quarter results as always thank you for your interest in the Anderson and we look forward to speaking with you again soon.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.