Q1 2022 Archer-Daniels-Midland Co Earnings Call

The impacts of racing cases, and Lockdowns in China.

Each of the world continued to emerge.

Pent up demand remains solid even in the face of higher prices.

The great work our team did was in service to our customers our company and our purpose.

Our company has come together once again in the wake of the unprovoked.

Justified invasion of Ukraine.

ADM has about 650 colleagues in Ukraine.

Of course, our highest priority continues to be supporting and protecting them and their families.

As well as helping Ukrainian farmers to get as much of their crop production as possible into world markets.

Our thoughts and prayers remain with the people of Ukraine.

Slide four please.

Food security is foundational to adm's purpose and beliefs.

Recent recent events have only magnified is important.

From a global pandemic to the short crop in South America to the conflict in Ukraine. It has become clear that we cannot take an abundant and efficient supply of food for granted.

Even beyond the current dislocations. This issue will remain one of critical importance over the next many years.

As a global population growth the need for nutrition will continue to grow with it.

At our global Investor Day last December we talked about how we expect demand to push global trade flows of corn wheat and.

Soybeans, and soybean mill up 21% or 130 million tons in the next 10 years.

Meeting that demand will not happen automatically.

It will take dedication expertise and agility as well as global scale and capabilities.

And an example of that is adm's destination marketing network.

Which gives us a presence in more regions, where demand is strong and growing.

As well as more direct connections to customers and the ability to offer the full end to end capabilities of our integrated value chain.

We're seeing how important that is today as customers are coming to us knowing that they can rely on ADM to meet their specific needs in a supply constrained environment.

We are not immune to the impacts of global disruptions, including those in the Black Sea region.

But our broad portfolio of nutrition products, and our ability to efficiently move them around the world.

Will allow us to manage through this dynamic market conditions and continue to help support the food needs of billions of people.

Sure.

Please turn to slide five.

Sustainability is another one of the global trends, so important to our companies and our planets future.

We remain focused on our strategy, which is aligned with fast growing demand for an array of products that are environmentally friendly including alternative proteins.

That industry continues to show impressive growth.

Global sales of four alternative meat and dairy products are expected to increase 14% annually.

Reaching a staggering $125 billion.

By 2030.

Okay.

When you look at the full range of products that alternative proteins could go into from middle term native submit extensions to emerging categories like ready meals in specialized nutrition.

The opportunities are even greater.

Our loan growth in this area is faster than the industry.

The quality of our product our integrated end to end value chain.

Our innovative product development and application capabilities.

And our global scale make us the partner of choice for our customers.

In fact, we never had a stronger demand for our alternative protein products than we're seeing now.

And we are confident in continued growth.

That is why earlier this month.

We announced a significant investment to nearly doubled extrusion capacity at our Decatur, Illinois specialty protein complex.

We also announced the industry's first end to end alternative protein innovation Center.

This of course follows up.

Our last year's addition of leading European alternative protein providers soy protein.

Alternative proteins or just one of the many areas in which we're expanding our capabilities to meet growing customer demand for more environmentally responsible products.

Our by our solutions team for example continued to expand its pipeline and advance the evolution of our carbohydrate solutions business with an impressive $55 million in revenue growth in the quarter.

Please turn to slide six.

We are advancing sustainability commitments in other parts of our business as well.

Last year, we unveiled new goals to reduce the scope three emissions and eliminate deforestation from our supply chain.

This is critical work.

We do not make these kinds of commitments without an achievable plan to meet them.

And once we move forward, we constantly challenge ourselves to do it faster.

That is why last week, we announced that we've accelerated our deadline for a completely deforestation free supply chain by five years.

From 2030 to 2025.

We also recently committed to work with the science based target initiative with the goal of obtaining their approval of Adm's climate targets and our alignment with ambitious global goes to limit rising temperatures to one five degrees Celsius.

Across ADM, we're continuing to align our portfolio with the world's growing needs and with our own purpose.

<unk> in us to serve our customers our communities and our planet and power in our future.

I'll discuss our business outlook at the end of our call, but in the meantime, I'd like to turn to Vikram to talk about our business.

Vikram.

Thanks, Juan Slide seven please.

AG services and oilseeds team effectively managed risk and executed exceptionally well in a dynamic environment, a robust global demand and tight supply.

Given primarily by the sharp South American crop.

AG services results were significantly higher versus the first quarter of 2021 global trade results were higher driven by strong performances in destination marketing and global Ocean freight not American origination margins and volumes were lower year over year, including approximately 75 million.

In negative timing effects, which will reverse in the coming quarters crushed.

Crushing was higher year over year in a strong global margin environment, driven by robust protein and vegetable oil demand improve.

Improving margins in the quarter resulted in approximately $60 million of negative timing effects, which will reverse in the coming quarters versus approximately $50 million in positive timing in the prior year quarter.

Refined products and other results were much higher than the prior year period, driven by healthy refining premiums and good refined oils demand in North America as well as strong biodiesel margins in EMEA.

Equity earnings from Wilma was significantly higher versus the first quarter of 2021.

Looking ahead, we expect substantially higher Q2 ethanol results in the second quarter of 2021.

Slide eight please.

<unk> hybrid solutions delivered substantially higher year over year results, the starches and sweeteners subsegment, including ethanol production from our wet mills delivered much higher results versus the prior year quarter, driven by higher corn co product revenues improved citric acid profits and excellent risk management in North America.

Higher volumes and margins in EMEA and higher volumes and margins in wheat milling.

Sales volumes for starches and sweeteners continued their recovery towards pre pandemic levels.

And as Juan mentioned, our bio solutions platform continued to deliver impressive growth with $55 million in new sales as demand for plant based products expands into more diverse applications.

Vantage corn processors delivered solid execution margins, but position losses on ethanol inventory as prices fell early in the quarter drove lower results versus the prior year.

Here year quarter's results also benefited from demand for USB grade industrial alcohol from the Peoria facility, which was divested in Q4 2021.

Looking ahead to the second quarter, we expect the current market dynamics to continue delivering carbohydrate solutions results similar to the very strong second quarter of 2021.

On slide nine.

The nutrition business delivered continued strong profit growth revenues increased by a very impressive 23%.

Even when adjusting for currency effects and removing the impacts of recent acquisitions revenue was up by 17%.

And while margins have softened somewhat they remain healthy.

Human nutrition delivered higher year over year results flavors continue to deliver solid revenue growth offset by some higher costs.

<unk> sales growth in alternative proteins, including contributions from our soy protein acquisition and positive currency timing effects in South America, offset some higher operating costs to help deliver better year over year results in specialty ingredients.

Health and wellness results were also higher year over year.

Powered by continued growth in probiotics, including a late 2021 deal and probiotics acquisition and robust demand for fiber.

Animal nutrition profits were nearly double the year ago period, due primarily to strength in amino acids, driven by a combination of product mix changes improved north American demand and global supply chain disruptions.

Looking ahead, we expect nutrition to deliver a second quarter significantly higher than the prior year period.

And with our recent acquisitions delivering ahead of our expectations. We are raising our profit growth outlook for the full year from 15 plus 220%.

Slide 10 please.

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 better performance in captive insurance.

Including reduced claim settlements versus the prior year. Some of the claims settlements that we expected to negatively impact Q1 results and now expected in the second quarter.

Net interest expense for the quarter was higher year over year on higher expense of long term debt higher short term borrowings to support working capital needs and interest related to a tax item.

In the corporate lines on allocated corporate costs of $209 million were due primarily to higher operating and project related costs and higher cost in the companys centres of excellence partially.

Set by incentive compensation accrual adjustments.

The effective tax rate for the first quarter of 2022 was approximately 16%.

For the full year, we are now anticipating an effective tax rate at the higher end of our previously guided range of 16% to 19%.

Cash flow generation remains strong one 6 billion before working capital changes versus $1 2 billion in the prior year period.

Our balance sheet remains solid with a net debt to total capital ratio of about 34% and available liquidity of about $9 $3 billion, even with almost $3 billion and higher working capital needs since December with that I'll turn it back to <unk>.

Thank you Vikram slide 11 please.

After a strong start of the year, we're looking ahead.

In the near term future, we expect lower crop supplies caused by the weak Canadian canola crop the short South American crops and know the black Sea disruptions.

Five continued tightness in global markets through 2022.

Well into 2023 and perhaps beyond.

As we look further ahead markets will continue to reflect the importance of the enduring global trends that are fueling performance across our portfolio.

Including a growing global population driving expansion in demand.

In health and nutrition.

So that is the work we've done to build a bit that ADM is so important.

We have the global integrated network risk management capabilities and diverse product portfolio to help us navigate through tight market conditions and meet global nutritional needs.

This is a challenge we expanded improved and repositioned our business to meet.

And we will continue to advance our strategy and grow our capabilities through our productivity and innovation initiatives in order to drive performance under our control and deliver on the evolving needs of our customers.

But it doesn't stop with ADM.

We're working with other participants across the food and agricultural value chain from farmers, who continue to do more every year to sustainably increase production.

Two technology providers, who offer new ways.

To make more with less.

Two governments, who in a tight supply and demand environment shows should resist the impulse to imposed export restrictions.

So looking at the balance of the year.

When we combine the strategic work, we have done to align our portfolio with fundamental global trends.

With our strong execution.

And the expectation of a continued tight supply demand environment.

We expect 2022 results to substantially exceed 2021.

And as we look further ahead to future of increasing needs for more and better foods we.

We will continue to work towards new adjacent products to address the world's toughest challenges.

The power of nature to enrich the quality of life.

Once again I'd like to thank our colleagues around the globe for their commitment and hard work to serve a vital global needs in a challenging and dynamic environment.

With that Emily Please open the line for questions.

Sure.

Thank you very much we will now begin the question and answer session in the interest of time, please limit yourself to one question and rejoin the queue for additional follow ups. Please register your questions now by pressing star followed by one on your telephone keypad. If you change your mind. Please press star one.

Can you ask your question. Please ensure that you would advice is unmetered lately.

Yeah.

Yeah.

Our first question today comes from the line of Adam Samuelson with Goldman Sachs. Adam Your line is open.

Yes, Thank you and good morning, everyone.

Good morning.

Good morning, So I wanted to.

Vikram I guess first question just as we think about.

The current market environment, obviously, a tremendous number of moving pieces.

Yes.

I guess I'm trying to calibrate.

Some of the things that could prove more enduring.

The business.

And the one that sticks out.

Inflation broadly and I'm thinking about energy costs, and what that especially in Europe .

Thinking about construction cost for new plants, So I'm just trying to think.

Specifically in oilseeds, how higher operating costs in Europe higher.

Higher replacement costs, if we're thinking about new builds how that might be impacting it.

While seed crush margins around the world and if you think that has a bit.

Longer tail to it and I would think that benefits you given your footprint.

Principally in the Americas.

Yeah, Adam Thanks for the question, yes in terms of energy costs. Clearly, we are not immune to that end, we have seen an elevation in energy costs. As you well know we have a program to actively hedge our program. So I think to a large degree we've been successful in doing that Nevertheless in places like Europe , where energy costs have been significantly.

Yes, that's had an impact on net margins, but as you look at the broader dynamics. We continue to see very strong outlook in terms of vegetable demand as well as protein demand and as you see most of the grain flows given what's happening around the world, particularly in the Black Sea region in the short South American crop moving to North America that should actually.

Support us in terms of our footprint. So the structural changes associated with <unk> remain very very much intact. So we think longer term, we feel very confident about the move higher that we cited in our global Investor day in terms of crush margins and for 2022 in particular, we see even even.

Further even more strength given some of the near term dynamics I just referenced.

Okay. That's helpful. And then I guess second question is more on capital on the balance sheet and I think it was impressive to see in the quarter.

The growth in inventory as yet the committed credit capacity basically being unchanged from.

From year end and I'm wondering how you're thinking about that as a strategic asset.

And the opportunities it presents both in terms of merchandising and risk in the short term, but also if the M&A pipeline is maybe improving as some others may not have a liquidity that you do in the current high commodity environment.

Yes, Adam we clearly view our balance sheet is a competitive advantage and in terms of capital allocation. We've talked about this before our capital allocation is inextricably linked to our strategy.

In terms of the guidelines in terms of the framework, we've articulated about 30% to 40% of our cash flow as you can direct towards capital expenditures and the remaining 60% to 70% of strategic growth investments and given our balance sheet flexibility. We are clearly in a position to undertake some of those growth investments, including M&A, if that becomes attractive but.

Also shareholder distributions, including 30% to 40% towards dividends as we cited in global Investor Day, we expect dividend payouts to be actually at the higher end of that 30% to 40% range in the near to medium term.

But at the end of the day, if you step back think about the operating cash flows we generated $1 6 billion in Q1, so we should be in a position to conduct meaningful buybacks as well in the medium term as we noted in our global Investor Day.

In the near term, we will repurchase shares to at least offset dilution.

Great that color is really helpful. I'll pass it on thank you.

Our next question is from Bernstein from Barclays.

Please go ahead.

Perfect. Thank you very much on the chrome congrats on the strong results.

I wanted to ask a question around just.

The global freight and global trade environment, and obviously with.

Some of the backup backlog thats been cost on unloading ships over in China because of all the Lockdowns have you seen or are you seeing any incremental disruptions over the last couple of weeks did you think there is going to cost.

Greater opportunities for you guys within the next coming weeks to excel here and to ultimately deliver strong.

On the service piece, just similar to what we saw already in <unk>.

Yes, Thank you Barry and good morning.

Of course.

We've been dealing with supply chain issues for awhile and I think that the situation in China has nothing more than just.

Pulling back.

More challenges if you will we see the.

The number of ships in congestion if you will.

Capesize Panamax supermarkets, and handy size have increased over the last week.

Increases about 10% give or take depending on the category.

So.

I think that's especially complicated us you see that because of the different conflicts in differential that you're seeing in crops that we have some of these trading flows around the world are being redirected so.

You redirect trading flows with maybe less ship availability and higher freight and longer travel times. So.

The situation continues to be dire and Thats why you are so important to have a team.

Our global team very active with many options to provide the supply.

And then to reach different destinations. So the combination if you will of our global trade with the destination marketing and all of that becomes more and more important every day for customers around the world.

Okay perfect. Thank you very much I'll leave it here. So you can stay on track.

<unk>.

Okay.

Okay.

Next question comes from the line of Tom Palmer with Jpmorgan. Tom. Please go ahead with your question.

Good morning, Thank you for the question.

Maybe just follow up on the outlook for the second quarter in the <unk> segment.

Maybe just a little commentary on the sub segment expectations are you expecting year over year profit increases across all three of the sub segments, where there any to call out a particular strength.

Yes, I would say our first quarter was showed strength across the three business is very good performance and as we look at Q2, probably we see the same.

There was some reduction in exports in AG services in the first quarter because of weather issues and some of that as we move into the second quarter. So we have a good book there.

China has put some some.

Orders also for Q2 and Q3.

We expect.

Crush profits too.

To be very strong in the in the in the second quarter certainly.

<unk>.

Refining margins.

So very good so I would say.

Demand has been.

Domestically strong for soybean mill in North America and certainly.

A lot of demand around the world for that so we continue to see crush very well supported by the oil and the meal. We continue to see demand for our exports in the second quarter. So the window of exports of North America, we will have expanded a little bit and uncertainty.

Refining materials are are they maintain very strong margins. If you look at last year, we entered into Q1 with low margins and we ended with a strong marketing. This year has been strong margins across the quarter. Then we expect that to continue into the second quarter.

Alright, thank you.

Thanks, Sean.

Yes.

Okay.

Our next question comes from Ken Zaslow from Bank of Montreal.

Okay.

Good morning, Ken.

Apologies, we have locked Ken from the queue.

The next in the queue, we have Ben <unk> from Stephens.

Your line is open.

Hey, Thanks, good morning, everybody.

Good morning, good morning.

I wanted to ask about the nutrition business.

Strong results from the first quarter, you know does it.

Versus the prior expectation of 15% plus now 20% growth for the year.

Called out acquisition contribution on the performance of acquisitions is that a fair breakdown of.

Organic versus inorganic growth thinking about maybe 15% organic growth plus 5% inorganic or how would you delineate between the two contributing.

Actors.

Well, so as we talked about restaurants in the in my comments then.

The revenue growth rate was 23%.

If you exclude M&A and.

Adjusted for FX, which was 17%.

Strong revenue growth frankly across human nutrition, and animal nutrition. The reason our profits were stronger than what we had guided in Q4 were threefold. One is we did expect some upfront costs that we sighted and we had anticipated inflationary cost pressures and supply disruptions. However.

The smart pricing and active supply chain collaboration with our <unk> solutions teams, we manage these very well across all of the nutrition businesses. The other aspect is we talked about industry, leading win rates and a global investor day actually a win rates even expanding beyond that.

The second point is as you referenced the op contribution from M&A and we are actually higher than expected. The third point is amino acids.

Of the deliberate switch we made from dry to liquid lysine last year combined with the strong north American protein demand and the supply chain disruptions.

Tribune from amino acids business was actually higher so really it's a reflection of those three factors that resulted in higher than expected nutrition profit for Q1.

Okay, great I'll get back in the queue. Thanks.

Thank you Ben.

Okay.

We do have a question from the line now from Ken Zaslow with Bank of Montreal, Ken. Please go ahead.

Hey, good morning, guys.

Good morning, Ken.

When I think about longer term you guys set out to target high single digit growth and then the 6% to $7.

Outlook by 2025, given the operating environment I know you just literally just put this out to target you change it.

In a change of environment, but how do you see that do you think that the growth rate is higher.

Where do you think that the ability to get to the 6% to $7 comes earlier than expected.

Given the favorable operating environment.

Yes. Thank you Ken good question.

Please.

When we put the plan in front of shareholders in December with just mostly to explain kind of what our company and our business model and portfolio continues to evolve aligning our sales with markets of higher growth rates and actually higher margins.

So.

What we can control as you can imagine is portfolio capital allocation and our execution. So we focus on that so directionally, we're going into that and we just put a milestone there to have a reference for investors of course.

This point in time, we're going to hit those numbers earlier.

It is obvious.

But I think we don't worry that much of the pace is more important for us the direction, we're going is higher margins higher.

Growth rates.

Paid sometimes facilitated for outside events in which our team and their execution are supposed to capitalize as much as possible into them. So do you ask me is going to be six to seven in 2025, certainly is going to happen sooner than that but again I think it's important to keep the team continued to build a better company.

With Vikram explained how we have generated $1 $6 billion of cash flow that gives us much more optionality on how much to accelerate the shift of the company into higher margin higher growth rates and to be honest.

After we have created nutrition and nutrition.

We continue to upgrade targets, even if they make $700 million last year. We are now focusing on building. The next scaled business. We're looking at microbial solutions on that.

That will drive the next generation of fruit and protein.

We're looking at climate solutions or via solutions, which will drive the next generation of sustainable products.

And also microbiome modulators, which with the <unk> pro and posted by your Opex.

We'll drive personalized health and nutrition, and let me remind you and the shareholders.

Contributions for all these three elements that we're thinking on building was basically muted during the forecast that we showed in the December in the December .

Global Investor base. So so we feel very good about the existing business is delivering 6% to seven maybe earlier than expected, but we have and the capabilities to build the next scale business for ADM.

Great and then my follow up question is when I think about the renewable diesel in the way it's going to happen.

With the backdrop of inflation, how does the balance between.

The renewable diesel going versus the.

Potential for inflation to curtail that where do you see that renewable diesel already.

Horse is already out of the barn that does that.

That momentum to continue versus is there a potential that the inflation can kind of either a long game and the timing of it or delay anything and then I'll leave it there and I appreciate your time.

Thank you Ken good questions as always listen first of all let me say on that debt.

I am very proud that our team.

And remember when we announced the speed at which we said we've been looking at that for two years. So we took into consideration all of these aspects and.

So our product remains to be a schedule remains on schedule to deliver on the harvest 2023. So most important what we can control that project is going well and we are managing through inflation and delays. So proud of the team there listen at the end of the day, we still expect the significant new capacity will come online.

Of course, when there are so many announcements in any industry youre going to have a percentage of that being.

Coming on stream I think.

There may be somebody ability on the timing of all that it doesn't escape anybody that there are labor availability issues, especially in the U S. Certainly.

Raw materials, with Elisa Steele or energy or whatever automotive expensive then whenever some of these things well.

It announced.

Maybe the builders of this pitch.

Hedged raw material exposure to or both things in anticipation.

But I would say if there is some delay it may not be but to allow crush explore.

Expansions to actually come on stream. So they can provide the soybean oil.

For all these plants to run and we also wait for.

We cannot allow to have a path.

To that so I.

I think listen the industry will develop it may have.

Short term issues here or there, but at the end of the day, a significant piece of new demand for soybean oil has been built and will be built.

Perfect. Thank you very much.

Thank you Ken.

Okay.

Okay.

Our next question is from Steve Byrne from Bank of America. Your line is open.

Yes. Thank you given those comments you just made there one about.

The outlook for renewable diesel.

And you also had comments in your slide deck about your own views about.

The.

The demand growth for alternative meat, and dairy, which could potentially lead to less demand for soybean meal.

Curious to hear your own view on do you see any any.

Any challenge here.

Meeting what might be a disparate growth.

Man for the oil versus the meal side.

All of these crush plants.

<unk> that are going to be built.

Yes no.

Listen.

It's a very good question and we look at that of course with a lot of attention.

I think right now when we see the capacity come in is all capacity needed actually to supply the growth of protein around the world.

We see North America with very strong domestic demand for meal, but we see also North America soybean meal being the most competitive around the world.

Especially now when you have issues in Argentina with some changes in the day when you have short crops in South America like we have had.

And we continue to have a strong demand we see also is that.

Customers are relatively open so theres not a lot of inventory in the chain that one needs to be flushed out.

And when you look at what's happening with feed and competitive fees certainly we'd given the conflict in Ukraine, the unfortunate conflict in Ukraine.

<unk> prices need to go up high enough that they get out of the feeding Russians. So they can be preserved to feeding people when.

When you take that up.

Bring corn.

The most effective carbohydrate and corn immediately brings soybean meal into the Russia. So we not only strong demand, but we see high inclusion rates sustain.

And again, given the strong leg of soybean oil in North America that will make soybean meal. The most competitive in the world.

We actually are very very positive about the demand and we think that we need all the expansion too much the market share that soybean meal North America will take from the rest of the world.

Thank you one maybe just one more on the oil side and that is what do you see as the global impacts of.

Indonesia has been on palm oil exports, how does that affect.

The global supply and.

Oil and your business in particular.

Yes.

You know.

Oils have been tight.

For several months already.

The year end.

And of course any announcement.

Sure.

In the proximity of the largest producer of palm oil in the world right. Those are the markets of course.

Got.

It was immediately clarified that this doesn't include crude palm oil.

Is the biggest products, so I would say.

I think Indonesia is just trying to take a short term.

Palliative for their domestic inflation I don't think it will significantly.

Alter their global balances, although the global balances continued to be very tight and any disruption we have the Ukrainian disruption of course with the Russia with sunflower oil so.

This is an area that everybody has to pay a lot of attention and it will require companies like ADM to.

Having the ability to reformulate. So we can take some customers that are existing customers, who are either palm oil sunflower oil to have alternatives to continue to supply their customers. So we are seeing that through our over the next joint venture, we're seeing that through our strategy joint venture.

So we're seeing the opportunity to add a lot of value to some of the customers that are looking for replacement at this point in time.

Thank you.

Our next question comes from Robert Moskow from Credit Suisse. Please go ahead with your question.

Alright, thank you.

I was wondering if you could give us a little insight into your visibility into crush margins in the second half of this year.

Are your customers locking in there.

Commitments for demand and supply and you yet.

And can you use that to lock in those margins.

And then a quick follow up if I could.

Sure Rob.

As I said I think that.

We have very strong visibility of course into Q2 I would say.

Further than that.

I think customers markets are even started so customers see prices relatively high right now those customers that are not covered.

They feel like maybe the course is showing them that they can get covered later a cheaper rate than today, So I would say in general.

We have coverage for the next quarter not for Q3 Q4, but when we look at.

Demand that we've seen around the world.

We think that when you think about meal and oil in.

In general not only North America, but also Brazil.

Crush margins need to be there to encourage the crushers to crush.

We need the demand for oil and we need the soybean meal. So you will have the demand.

The crush margins to incentivize people to crush and we are seeing that with the margins that are happening in Brazil, or the U S or Europe , all our margins today are higher than what we anticipated and we think that does the year rollout and demand continues to be solid and strong.

Crush margins will continue to send that signal to all of our structures, which is we need the meals, we need the oil keep crushing.

Got it.

And just a follow up.

You mentioned ocean freight being a big benefit and I think it had to do with some redirecting of ships.

China related to Lockdowns, but I'm sure. It also has to do with just overall.

Moving freight from one destination to another and shifting.

Directions.

Can I assume that that is a big benefit to you.

And that could continue for the rest of 'twenty two or is it is it kind of like.

More episodic in nature.

Yeah.

Rob we have as part of our global trade group, we have a strong.

Ocean freight group.

They they work hand in glove to make sure that.

We continue to serve the customers with the most effective destinations the most sufficient destinations so.

We are a big player.

It's a big player.

A lot of resources.

We tend to have a relative advantage to others, so when things get complicated.

And right now they are very complicated we tend to have a relative higher competitive advantage than others. So I think that shows in the margins that we obtained in this.

Logistics right now guy complicated they are complicated in the river. They are complicated in the oceans and there is a lot of redrawing of.

Trade flows and you can only read row, a lot of trade flows. If you have a lot of origin options and a lot of destination options because you need to connect both.

And our Ocean freight group accounts with that blessing, which is ADM originating all the key parts of the world I have destination units in all key parts of the world. So it provides them with more ability to play to play routes than maybe other players.

Okay.

Our next question comes from Vincent Andrews from Morgan Stanley .

Your line is.

Thank you and good morning, everyone and congratulations to Vikram and Ray on your new roles and Ray It was great to work with you all those years one could I ask you just to talk a little bit about how youre thinking about the consumer and consumer demand.

Maybe particularly in Europe , but also globally just given we have a lot of food inflation, we have a lot of energy inflation.

What do you think give clearly we need to destroy some demand just given how tight supply.

How are you thinking about that equation this year into next year.

Yes.

Listen we are paying of course close attention to that at this point in time, we haven't seen.

Any significant impact on demand for us.

If you think about.

Yes.

So far customers are paying higher prices.

There is still especially in North America is still.

Haven't changed their behaviors, we think that of course you have.

Disposable income suffering from higher gas prices and higher food prices eventually.

They will they will have to adjust we have seen more to be honest Vincent in the <unk>.

Some of the emerging markets in which may be food is a bigger percentage of their disposable income. So we have seen some we have seen some adjustment.

A small adjustment in that but I would say at this point in time, we have not seen any relevant or material adjustment to our demand and we think that given the pent up demand that existed from recovery of.

Coming out of Covid.

People in general have been hires have been having higher savings rates.

And we have seen wage inflation around the world that have gotten more money in the pockets of menu. So at this point in time, we think consumer has been demand has been very resilient, but.

There's going to be a point in which.

Disposable income will get tight and we will see some some some changes into that we havent seen it yet we don't see it in the immediate future either.

Okay. Thanks, guys.

Thanks.

Okay.

Our next question comes from Michael <unk> from Cleveland Research Michael. Please go ahead.

Yes, Hi, I was wondering if you could talk a little bit about the impact of the avian flu here in the U S as well as internationally and what that.

You might look like in terms of.

Pat for meal demand.

Yes.

Michael we haven't seen at this point in time any significant impacts to our.

Our poultry demand.

In.

In North America.

The numbers at this point in time seems to be about half the size of the of the issue. There was in 2015. So it's something we are following very closely of course, but we.

We cannot say that we have had an impact so far.

Hopefully this virus are difficult to control. So of course, there is a lot of cemetery elements being thrown at us hopefully that will fluctuate, but we will have to keep a close eye to that.

Yeah.

Great and a follow up question is just you know.

Second gears.

Are you concerned about the movement of fertilizer throughout the World I know you have a fertilizer business, but beyond that just the impact if we do end up in a really.

Tight rein environment are you how do you think.

There is a food versus fuel debate, how do you see that sort of playing out and is there any risk.

Ethanol volumes or the growth.

These or how do you sort of see that playing out thanks.

Yes.

Fertilizers.

To be honest Michael.

Of course fertilizer supply chain, so tight and it's been highly publicized however.

Good.

Our evidence shows that trade lanes are adapting and markets are getting sufficient supply of fertilizer of quota at much higher prices.

Drive prices for grain.

I think today, especially Brazil, the U S. Certainly has the fertilizer for this crop so.

Question is the Brazilian growth, which is coming in a few months and I think it is still possible what we get from our people in Brazil to get enough potassium fertilizer in country by the planting season.

Yeah.

And of course, any any any shortages can produce production losses, but at this point in time when people are thinking between maybe 15 or 20% less application at that level. We don't think that we're going to see a significant change in the production forecast is probably more depending on whether at this point in time and rain that occurred.

The license application.

And the second was on food versus fuel.

At this point in time, I think that we are committed to try to help the world with.

Food and the environment. So they are both.

Axis of the same equation.

I would say they both touch.

Disposable income I was saying before if you get ethanol to reduce the cost of gasoline that creates more disposable income to take on food inflation. If you take if you don't put any biofuels into gasoline and you're paying more for gasoline then you may get cheaper food, but youll have less disposable income there so.

To be honest I think the molecules react to the prices that they are given in the market given the different regulations in the different in wireless and what we try to be as efficient as possible bring in as much of those as many of those molecules to the market.

Possible to satisfy everybody so.

I think at this point in time, we have seen some corrections in certain biofuels mandates.

Across the world, but.

But in other countries. It has been only a reduction and not an elimination. So this I think they are short term things.

Because we still have the climate crisis, which is.

A long term objective.

Mostly the transportation industry, but also in every industry will have to address and biofuel sustainable aviation fuels and all that are a big part of that reduction.

Our next question comes from Eric Larson from Seaport Research Partners. Please go ahead.

Yes, thanks, congratulations everybody in the chromite congratulate you on your new role and Rage use while I look forward to working with you on that so congrats.

So.

Listening to the call today.

On a year.

All of US there's a lot of confusion, there's lots of moving parts. So.

When I look back 10 weeks ago, I realize that U S grain prices had to move higher in order to even kind of.

You can begin to maybe ration demand or not and of course, we've moved quite a bit higher.

So what I'd really like you to do one is kind of take a 30000 foot viewpoint here.

As we all know price does ultimately rush in demand.

The only thing I can see that would maybe do that at this point just maybe.

Global recession are you must recession.

Can you kind of I don't see a lot of demand destruction at this point, it's a little bit from bird flu, maybe it's 25 billion bushels, which is the ocean but.

Do you see any significant demand destruction.

Yeah.

Today.

Including whats happening in Ukraine, and what you have in storage for corn and other things what.

How do you look at the world today from a demand.

Total demand perspective versus supply and are we seeing demand destruction with high prices.

Yep. Thank.

Thank you Eric.

Let me see let me tell you how I see these so.

Last year.

It was a big production year in the world needed consume more grain than that peak production. So the issue is.

The World continues to grow and sometimes it's not a matter of population growth, but it's a matter of income and how people like people in China has been an incredible economic improvement of their standard of living that improve their diets that doesn't go down. So we think that is.

What we keep on talking about our trend of food security, we will have to provide more for the world.

In situations like today, where we are already tight from a supply demand perspective, and we will get tighter as demand continues to grow we see here in ADM that at least we need to very good systems of crops in North America, and South America to actually balancing become more comfortable in those.

Supply demand balance.

Balances when we think about prices today prices today are going up too.

To Mark three things that needs to happen one is export prices need to go up to being able to draw out all the inventories that are.

That our stock there or they are safe they are hoarded there to be able to replace the production that we have lost the production. We have lost in South America, but the production we are losing now in the Ukraine and Russia. So first you need to throw out those inventories and bring them into market. So we can balance our so the second as I said.

Before wheat needs to be placed out of the Russians. So you can be preserved for human consumption and the third one is to give.

Farmers slides.

The signals that they need to plant more and I think the world needs more acres those acres today, they are not going to happen from the Baltic area. They are not going to happen from U S. That we are basically maxed out so they make up in South America. So we need higher prices to bring south American acres, we need higher prices.

To draw those inventories into the market.

We need two good years of crops, both in North America, and South America that will that will allow us to balance.

The supply demand given the strong demand.

Yes.

I agree to set we need this year's crop in the U S next year's crop in Brazil, and we need 2023 in the U S to do very well amidst even another we need for maybe big crops around the world but.

Sometimes we rebalanced some of this is.

This high inflation rates have around the world.

There is an economic recession that comes in place.

Have you factored anything into that forecast that would change your outlook.

Eric I.

I am not an economist but I.

I think there is a narrow path to achieve a soft landing here and the U S economy has been very resilient through all this event so.

I think the U S economy is driven by the consumer the consumer has been saving money for two years that they didn't spend a lot.

And as I said before they were Colby recovery packages, but there has also been salary inflation and wages inflation that that has put money in the pockets of customers. So I think that.

For the foreseeable future, we don't see a significant a significant.

Can impact of demand if not we will be flying that out, but we will look at that we look at our plants. We are preparing our clients for a long period of strong demand we want to run them at high capacity. So at this point in time I don't see.

I don't see an issue in the west maybe the only the only flag it.

How COVID-19 Lockdowns diebold in China, but.

I don't have a lot of visibility at this point in time.

Alright, Thank you Juan I appreciate your comments.

Thank you Eric.

And as you all the questions. We have time for today. So I will now turn the call back over to Juan Luciano.

Thank you Emily.

We close our call.

I wanted to take a minute to thank ray for his exceptional contribution all this year to idms.

CFO . So thank you ray and it's been a pleasure and I'm delighted that you continue with us to continue to help.

The bigger players. Thank you one and also I just wanted to thank all the investors and all the analysts for really.

11 years in this role.

Grown I've learned from you and hopefully we've been also been able to teach you about ADM and how this is a great company in the future is incredible for this company and I look forward to continuing to support one and support the company in my new role. So thank you Juan Thank you and congratulations.

Of course welcome Vikram.

This was your bus system.

Fire here in the earnings call. So thank you very much and welcome to the role and looking forward to it.

Thank you so much.

Okay.

Thank you everybody for joining us today.

<unk> 12 notes upcoming investor events in which we'll be participating.

I'll also note that our annual sustainability report, which will detail our significant progress in our bold ambitions across the value chain is scheduled to be published in may.

As always please feel free to follow up with me. If you have any other questions have a good day and thanks for your time and interest in ADM.

Thank you everyone for joining US today. This concludes our conference call you may now disconnect your lines.

Okay.

Okay.