Q3 2022 Bunge Ltd Earnings Call
Hello, and welcome to the <unk> Q3, 2022 earnings resolved trivia.
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Thank you Keith and thank you for joining us this morning for our third quarter earnings call before we get started I want to let you know that we have slides to accompany our discussion. These can be found in the investors section of our website at buggy dot com under events and presentations.
Reconciliations of non-GAAP measures to the most directly comparable GAAP financial measure are posted on our website as well.
Like to direct you to slide two and remind you that today's presentation includes forward looking statements that reflect buggies current view with respect to future events financial performance and industry conditions.
These forward looking statements are subject to various risks and uncertainty.
He has provided additional information in its reports on file with the SEC concerning factors that could cause actual results to differ materially from those contained in this presentation and we encourage you to review these factors.
On the call. This morning are Greg Heckman buggy, Chief Executive Officer, and John Nipple, Chief Financial Officer.
I'll now turn the call over to Greg.
Okay.
Thank you Ruth Ann and good morning, everyone.
I want to start by thanking the team.
Do they are outstanding focus and coordination we delivered strong quarterly results against the backdrop of shifting operating environment.
The third quarter once again demonstrates the strength of our team and the <unk>.
However of our global platform.
Through our global organizational approach and asset footprint, we've created the ability to adapt quickly to supply and demand disruptions.
Whether the markets are driven by inflation energy costs weather impacts conflict or.
Whereas in this quarter all of those factors.
The team uses our expertise relationships and analysis to deliver for our customers on both ends of the value chain.
Okay.
Looking beyond the current market environment, we continue to focus on growing the business by making disciplined choices balancing benefits and risks take.
Take renewable fuels the demand for low carbon feedstocks continues to be strong and is expected to increase.
We're meeting this demand in part with two partnerships, we announced earlier this year.
Our renewable feedstocks joint venture with Chevron is going well and we're excited about our investment and cover Chris and its ability to develop a cover crop to bring a new low ci renewable oilseed to market.
Just two weeks ago, we announced a joint venture with the Leeco the renewables division for a B P. Food group to create a business that encompasses the full lifecycle of edible oils.
This partnership will expand our portfolio of renewable feedstocks in Europe , and help address environmental and energy security challenges in key markets in that region.
These partnerships are a great example of buggies commitment to finding innovative sustainable solutions in the renewable space.
As a global leader in Oilseeds processing, we see this as our obligation and a significant long term opportunity.
At the same time, we're expanding our origination capabilities in South America with the launch of a ratio.
Partnership with U P L, providing an integrated and complete offering of inputs services financing solutions and agronomic consulting to farmers in Brazil.
Turning to third quarter numbers.
Adjusted core segment EBIT was above last year's results and ahead of our expectations driven by strong performances in agribusiness and refined and specialty oils.
John will go into more detail on the P&L, but I want to mention the impact of higher energy costs and inflation on buggy.
Like all businesses, we are impacted by inflation or recession, but not in the same manner or magnitude is purely industrial companies due to our place in the center of the supply chain.
Looking ahead, we expect the market to remain dynamic in there.
We're moving forward with our usual discipline.
Based upon our execution, so far and the current environment. We now expect to deliver adjusted EPS of at least $13 50 for the full year 2022.
Which would be our third record year in a row.
In this market, having a solid balance sheet strong liquidity and global Optionality are a competitive advantage.
We're in a great position with the flexibility to operate our business invest in our future and return cash to shareholders in the form of dividends and share repurchases as we did here in the third quarter.
With that I'll hand, the call over to Jon to walk through the results.
Thanks, Greg and good morning, everyone, let's turn to the earnings highlights on slide five.
Our reported third quarter earnings per share was $2 49, compared to $4 28 in the third quarter of 2021.
Our reported results include a negative mark to market timing difference at <unk> 19 per share and a net negative impact of <unk> 70 per share related to one time items.
Adjusted EPS was $3.45 in the third quarter versus $3.72 in the prior year.
Adjusted core segment earnings before interest and taxes or EBIT was $740 million in the quarter versus $698 million last year.
The higher results were driven by our refine a specialty oil segment.
In total agribusiness results of $528 million compared to $533 million last year.
And processing results were essentially flat with last year as increases in North and South America were offset by lower results in Europe were a combination of a sharp rise in energy cost and increased mill imports pressured margins.
Results in China were down primarily due to the impact of pandemic related lockdowns.
Merchandising results of $108 million were down slightly compared to last year as higher contributions from global grains and financial services were offset by lower results in global oils marketing.
And refine our specialty oils higher results reflect strong performances in our refined oil operations in South America, Europe , and North America.
Yeah.
In milling higher results in North America were more than offset by lower results in South America.
The decrease in corporate expenses was primarily related to the timing of performance based compensation accruals.
The decrease in other was primarily related to lower gains on investments and Bhangi ventures.
Lower results in our noncore sugar and bioenergy joint venture were primarily driven by the combination of lower ethanol volumes and increased costs.
Net interest expense was up compared to last year due to higher interest rates, partially offset by lower average debt levels.
Also impacting the quarter were foreign currency borrowings in certain countries, where interest rates were high however, the incrementally higher borrowing costs were fully offset with currency hedges that are reported in gross margin.
Let's turn to slide six where you can see our positive EPS and EBIT trends adjusted for notable items and timing differences over the past four years, along with the trailing 12 months.
This performance trend demonstrates our team's ability to successfully manage through rapidly changing markets and also the strength of our global platform.
As shown on slide seven year to date addressable SG&A has increased modestly year over year, reflecting a resumption of more normal business activities, such as employee travel and related expenses as well as increasing investment to strengthen our capabilities and drive growth.
Slide eight details our capital allocation of approximately $1 $8 billion of adjusted funds from operations that we generated year to date.
After allocating $184 million to sustaining Capex, which includes maintenance environmental health and safety and $8 million to preferred dividends on shares now converted to common equity.
We had approximately $1 $6 billion of discretionary cash flow available.
Of this amount, we paid $248 million in common dividends.
<unk> $168 million in growth and productivity, capex and repurchased $200 million of common shares during the third quarter.
This left us with approximately $1 billion of retained cash flow, which we invested in additional working capital during the year, while also reducing our net debt.
We will continue to maintain a disciplined and balanced approach to capital allocation.
Moving to slide nine at quarter end readily marketable inventories or rmi exceeded our net debt by approximately $2 $3 billion.
As commodity prices have moderated recently the cash has been invested in inventory has been released and deployed towards debt reduction.
To provide additional understanding of how commodity price movements and other factors impact our cash flow from operations. We have posted a presentation in the investors section on our website. This morning should.
Should you have any questions feel free to reach out to our IR team.
Slide 10 highlights our liquidity position, which remained strong at quarter end approximately $6 $7 billion of our committed credit facilities was unused and available.
This provides us ample liquidity to manage our ongoing capital needs in this volatile commodity price environment.
As shown on slide 11, our trailing 12 months adjusted ROIC was 22.2% 15, six percentage points over Rmi adjusted weighted average cost of capital at six 6%.
ROIC was 15, 2% or 9.2 percentage points over our weighted average cost of capital of 6%.
The spread between these two metrics reflects how we use rmi and our operations as a tool to generate incremental profit.
Moving to slide 12 for the trailing 12 months reproduced discretionary cash flow of approximately $2 $2 billion and a cash flow yield of 21, 7%.
Please turn to slide 13, and our 2022 outlook.
As Greg mentioned in his remarks, taking into account our third quarter results. The current margin environment and four curves we've increased our full year 2022 adjusted EPS outlook to at least $13 50 per share a $1 50 per share increase over our previous outlook.
In agribusiness full year results are expected to be higher than our previous outlook, but down from last year as stronger results in processing or more than offset by lower expected performance in merchandising, which had a particularly strong prior year.
And refine our specialty oils and full year results are expected to be up from our previous outlook and significantly higher than last year, driven by our refining operations.
In milling full year results are expected to be in line with our previous outlook and significantly higher than last year.
In corporate and other results are expected to be in line with our previous outlook and last year.
Yeah.
And noncore full year results in our sugar and bioenergy joint venture are expected to be lower than our previous forecast and down slightly from last year.
Additionally, the company now estimates the following for 2022.
And adjusted annual effective tax rate of 16%.
Net interest expense of $300 million.
Capital expenditures of $600 million, and depreciation and amortization of $400 million.
We have reduced our capex forecast from our previous estimate of $650 million, primarily due to supply chain delays.
We would expect to carry this shortfall over into 2023.
With that I'll turn things back over to Greg for some closing comments.
Thanks, John .
Before turning to Q&A I went out for a few closing thoughts on how we're investing in the business to ensure that we're best positioned to capture the growth ahead of us.
That's in our physical infrastructure, our technology and most importantly, our team.
First we are strategically investing in our existing facilities.
Safety and maintenance projects as well as in key upgrades to ensure our platform remains strong inefficient and operates at optimal utilization.
Second we're investing in and planning for new projects, both through partnerships as well as Greenfield and brownfield opportunities that further our strategic goals and exceed our return requirements.
We're also investing aggressively into digital tools.
We know we will deliver our greatest impact when our teams are fully empowered to use technology data and new ways of working to connect farmers to consumers and smarter faster and simpler ways.
This includes investments in younger connectivity automation and machine learning to ensure our plants run reliably and at optimal performance.
We're also investing in systems to increase real time insights to help us better anticipate key market trends manage flows and transactions.
And this is a great example of our focus on continuous improvement in an area, where we feel we already possess industry, leading risk management capabilities for buggy and our customers.
And most importantly, we're investing in our team.
Having the right people with the right skills to make the best use of our assets and technology is what leads to our success.
We continue investing in learning and development programs to support our strong talent at all levels of the organization.
We're also expanding our in turn and training programs to ensure that we have a steady and diverse pipeline of the best and brightest talent to develop into the next generation of leaders for this great company.
And with that we'll turn to Q&A.
Thank you at this time, we will begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
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And the first question comes from Antonio with Barclays.
Yeah. Good morning, Thanks, very much morning, Greg Good morning, John Congress.
Good morning, Dan.
So that's a structural question. So obviously you've raised the guidance by about $1 50 to 13 50, now and you're just fifth third record year in a row.
I mean, we all know the market environment is really good and.
You've obviously leverage on that but could you talk a bit a little bit about what is driving our results I mean, how how much of that increase structural how much is in control of fungi often in light of that just a few years ago, you made like $10 less earnings per share versus where you've been.
Running at like last year. This year, so just to understand the magnitude how much is structural how much your spunky itself and how do you think about this going forward.
Okay. Thanks, Ben Let me, let me talk about buggy first and then talk a little bit about the environment.
Look where we're running a very different company. If you think about the significant changes that we made here.
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Starting with the portfolio.
The number of investments that we've made.
We've optimized the footprint.
We protected the fact that we have a very global footprint and that's that's shown to be very important here.
We're approaching how we operate with a completely different level of discipline and that's not only on the day to day risk management of how we operate how we think about investments and how we make investments.
We focused really on the assets in these big fixed asset businesses, you need to really be excellent operationally and the way our commercial teams worked with our industrial teams. I mean, you can look at our volumes our capacity utilization.
The unplanned downtime continues to get lower just a focus around the operational improvements are fantastic and very important are the focus of course on the balance sheet strengthening that our credit ratings our liquidity.
And then the operating model right the operating model and the reward system to support it.
That's really led to the agility that that allows us to take advantage of a better environment and it's the agility and the alignment of our global team.
And the speed to act and I think you know you saw some of that even here in the fourth quarter in the third quarter.
If you look externally.
You know we've got a lot of a lot that's changed right. If you look look back here in the in what we've done here in the last three years that we were in control of their a lot of things, we weren't right, but renewable diesel.
That is that it's definitely a tailwind.
Tailwind in Biofuels in general globally are in.
And with so I think the energy prices and the volatility we expect going forward that doesn't look like that's going to change global lesson DS have remained tight and and that's led to a.
More volatility and then of course, we've had the dislocation.
From the the Ukraine, Russia conflict.
And that's going to carry on.
As well going forward on the dislocation even if the war ended today because of the lack of trust and because the infrastructure. That's been damaged and then you've just got geopolitical tension and uncertainty.
Again.
The climate and the weather extremes.
And then add in all the supply chain challenges that started with the pandemic, but seem to not be able to get cured even as the pandemic winds down in most parts of the world.
So what that leads to it it's more complexity for all and our business is really helping our customers at both ends of the supply chain manage that complexity and in helping solve problems and I think our global footprint and our way of operating it are showing that in a number of different conditions that we can continue to deliver and we're <unk>.
Really proud of that.
Perfect.
It was very clear. Thank you very much for that and then just one quick follow up I mean, when we look into the fourth quarter and what you've basically been been guiding for and just in comparison to last year could you give us a little bit of a of a more detailed versus what the annual guidance is and what you expect from a from a sector specific sector.
Specific point of view for the fourth quarter and agribusiness refined in milling.
Yeah.
Start by saying just reminding you what we do in our outlook is you know we look at one what the curves are and then of course, we look at what we have.
On the books already what we are seeing in the in the refined especially oil is a higher a higher percentage booked here for Q4, and even starting out into 2023.
Of course, that's the the most stable part of the P&L so that.
Gives us some of the confidence in the at least 13 50.
And then we're seeing.
You know no doubt a an environment that has been.
Very hard to predict so it's fairly risk a risk off I think globally. If you look at the macros and so you know, we're definitely operating with lower levels of risk.
And it's very uncertain, how it will play out but I think you know that's that's what's in our outlook that in the curves.
Just add Ben.
Ultimately, we had a very good fourth quarter last year and merchandising and that's the one that's most inherently difficult to predict and so we don't we don't certainly forecast.
You know a quarter like what we saw last year, but that's also where the the opportunity ends up you know when we see volatility so you know with.
With the with the at least 13 50 implies that there could be upside, but certainly if we get it it will be most likely in the merchandising segment.
Perfect very clear thanks for that clarification Congress again.
Thank you and the next question comes from Ben Pham of Newsletters Stevens.
Hey, Thanks, good morning, everybody.
Good morning, Good morning, Ben.
I wanted to ask maybe.
Maybe a follow on to Ben's question, but in a slightly different way just thinking about.
Where the stock is priced today.
It looks exceptionally undervalued either relative to kind of.
The forward outlook in the next 12 month period or even at your.
Mid cycle earnings power of baseline earnings power update you gave us that as of the last quarter.
And.
I'm wondering maybe.
Given the constructive backdrop that we see in the very visible demand drivers you talked about.
What would have to happen for us to go either back to baseline or below that over the next year or a couple of years because it seems like.
In a fairly draconian outlook on beef.
Being implied in the stock price today I know you guys bought some stock back in the corner I think you'd probably agree it's undervalued, but I'm just curious like how bad do things need to get doesn't need to be a tail risk what needs to happen for things to go off of where they are.
Yes, we agree it's very undervalued Ben so thanks, thanks for calling that out.
Look we don't we don't see an environment here in the next couple of years, which is you know looking out fairly far for these businesses. If you look at the structural setup on what needs to be done.
From a production standpoint globally to continue to build the crops to what we see coming.
On demand. So I think it's indeed continue stay tight and we've talked about the the tail winds.
From Biofuels generally and in renewable diesel specifically so.
We don't see a way back to baseline here for the next couple of years that just that that's not in the cards.
Yeah, Ben I would agree with that comment from Greg.
You know when you look at <unk>.
Just the front end demand that we have for soybean oil.
Find oil today and in a market, where you know, perhaps even R&D isn't ramping up as quickly as some people would have expected, we're still very tight and for demand for soybean oil is very strong and on top of that you know, there's there's always the looming.
Recession discussion, but for US I think if you go back and look over time.
Our company has performed extremely well historically and generate a lot of cash even in tough environment. So we feel very good about the next couple of years into Greg's point I don't think we really see a scenario where the 850 baseline even is that even comes into play I think the other thing. We're you know we're personally struggling with and I don't think.
Ourselves our industry.
Or are specific to that I think it's kind of broad based it's more expensive to build things to build capacity and it takes longer to get things done.
And that all also extends the cycle.
And then as we've talked about you know I think globalization is done for a period of time, how long, we'll see and what that means is that when we had a supply problem or a demand surge globally every origin and every destination was available to solve that problem in the past.
And that's no longer true.
Based on what's happened with with the war in with geopolitical tensions so would that not changing there are fewer ways to solve and which means more volatility and that also is you know creates the opportunity as we have to help people solve problems to.
To help with food security and all of that sustains the cycle as well.
Okay. That's great just as a follow up you did buy back stock in the quarter what was the catalyst for that what prompted that is that something I know, it's something that you've talked about in your multiyear plan as a part of your capital allocation priorities.
But maybe help us think about our expectations around that.
Yeah, Ben you know, we've talked about kind of in our go forward planning that we're going to buyback a $1 billion in a quarter or you know dollars.
Dollars' worth of stock over the next five years.
And it's really just part of our normal allocation plan and as we look forward and we looked at the amount of cash we're generating and our forward pipeline of projects.
All Capex and M&A, we felt like we you know it was a good time to buy in.
Generate cash and you know this won't be a one and done it's going to be a normal part of going forward. We've said will kind of be opportunistic around timing and pricing.
And as you know, we have windows, where we're blacked out around quarter ends and things like that so we have to we have times, sometimes that limited amount of time to do it in any given quarter, but but it.
It just we just felt like it was the right time to step in and do do salmon.
We will continue to look at it every quarter like we always do.
Okay. Thanks very much.
Thank you.
Thank you and the next question comes from Adam Samuelson with Goldman Sachs.
Yes, thanks, and good morning, everyone.
Good morning, Adam Good morning.
So maybe the first question just thinking on the fourth quarter outlook, a little bit and let me.
In agribusiness I wanted to just think about some of the some of the pieces because it full year agribusiness down.
Year to date, you're basically flat in the and in the whole segment. Obviously, you talked about merchandising had a good fourth quarter and you don't always have.
Don't assume that as a baseline, but do we infer just from on the processing and crushing side I mean margins, especially in North America remain excellent right now and would be I think ahead of last year's levels that.
Kind of thinking processing higher year over year merchandising assumption lower because you did.
You see what the market gives you.
It's kind of the starting assumption.
Or am I missing something on the in that buildup.
No I think that's correct and when you think about merchandising.
The backdrop there are courses.
Demand down in China with Kantar.
Continued Cobra zero policy.
But definitely had some effect not only on commodity price, but also on on freight and the opportunities. There. So we'll see how how that plays out.
And then on the on the crush side North America continues very strong of course, you've got the energy challenges.
In Europe , which has had definitely some effect there on our soy now that being said I think the team's done a nice job of managing as margins have been very volatile.
Whether we've had to ship in from outside the continent from some of our other capacity.
Or if when the margins are there to lock it in so that we can run with those are those would be some of the big drivers to watch here, Yeah, I might just I'd add to that that you know when you look at kind of where we'll end up for the year are based on our current forecast.
We are going to be up in processing, which when you look at the environment.
With Covid impact in China.
Relatively tough year high high energy costs in Europe .
And in the fact that we will finish up in processing.
It was pretty exceptional.
And merchandising, we just had a phenomenal last year, we're going to have a good year. This year merchandising, we just had a.
A really unusually strong year last year. It doesn't mean, we couldnt repeat it going forward at some point, but we certainly don't predict that here for the remainder of the year, but again, that's where some of the upside is and then of course on the refine especially the oil side.
Significant over overachieve my versus a year ago, and then milling.
With the strong first half we had we're gonna finished well ahead of last year. So all in all other than merchandising, which is the piece that you know inherently is most difficult to predict and maybe the most opportunistic the base part of the business. The rest of it is looking to be very strong year over year.
Alright, that's helpful and then maybe coming back to the capital allocation discussion and I mean, obviously, the the working capital balances came down and the net debt came down you did buy back some stock, but can you help us frame just what you think of your dry powder today is I am thinking also in terms of the committed credit facilities.
A couple of those facilities are delayed draw term loans, which you would think are.
Opportunistic funding for potential M&A and just how do you see that M&A environment and the dry powder broadly that you have and with balance sheet cash looks pretty under levered.
Yeah, I mean, if you look at it today, you know where we've got if you. If you just look at today, where our credit metrics are with the rating agencies. You know at 1.3 times for Moody's for example, you know that would imply you know.
$3 billion to $4 billion of dry powder and in that capacity alone.
Not to mention what we expect to continue to generate cash. So we do have a lot of dry powder and obviously you know we're going to we're going to as we said before going to maintain discipline in our approach to capital projects and the timing of those with M&A and the timing of that and.
Certainly we don't expect to maintain these conservative levels forever. That's that's not what we what we want to do we want to deploy the capital in one way or another.
Certainly M&A is opportunistic and timing of that's.
Very difficult to predict.
But you know we're certainly we have an eye on that area Capex things are a little slower than what we'd like to see just given supply chain constraints, but.
We do expect the next couple of years to be you know.
Significant significantly above our historical levels of Capex, and then of course buybacks.
You know, we we that's going to be a big part of the mix as well.
Okay I appreciate all that color I'll pass it on thanks.
You bet you.
Thank you and the next question comes from Rob Moskow with Credit Suisse.
Hi, Thanks, two questions actually.
Maybe could you give a little more color on the volume the processing volume that you did in the quarter regionally.
It because.
Your volumes are impressive given the tough conditions I just wanted to know you know where where are you up and where you're down I imagine Europe is down.
And secondly, I had a question about your cash flow statement.
And you know cash flow from operations it is negative.
Using the accounting rules, but when you give yourself credit for securitized trade receivables, it's I guess, it's very positive.
Can you walk me through a little bit more about how that works and with respect to your share repurchase. It is it an obstacle in buying back as much shares as you want or is it not really relevant to that thanks.
Yeah. Thanks, Rob Yeah first of all you know operationally when we look at the quarter from a from a refining and process from a processing standpoint actually the two places we were down one.
One was Argentina, we were down slightly year over year for the quarter and then in China.
But everywhere else, we were flat to up so actually very strong volume in the U S around processing in Brazil. We were ahead of last year and in Europe . Despite the difficulty we were basically flat year over year in terms of volume on processing.
With respect to cash flow.
In part why we put a deck out on the on the on our portal. This morning on our website is to try to help.
Some of the confusion around the impact of our AR securitization program and how that impacts cash flow. It doesn't really impact cash flow impacts the presentation of cash flow and that's right. So I see it now.
It shows up in the investing activities, yeah, right and in fact and in fact, we're working on a redesign of that program right now and hopeful that if we can do that it's going to eliminate the way we would have reported externally, which will make will go a long way and clarifying our real underlying cash flow. Then you really have to just look at our change in working capital.
Set that aside.
To get to our underlying cash flow so.
Our underlying cash flow, we do do an adjusted <unk> and there's a reconciliation in the back of our investor presentation to get to those numbers. That's how we look at it and ultimately the other way to look at it is look at the trend in our our working capital our inventory levels versus our debt, where we've been able to decrease that over time, but yet we still continue to incur.
Working capital when it's opportunistic and Rmi, our inventory levels have been because of prices, but yet we've been able to maintain or reduce our debt over that time period, and and ultimately obviously that capital will be available to deploy elsewhere, but.
A big part of why our our leverage ratios have gone down so much.
And then on share repurchases, there's you know share.
This is gonna be.
<unk> opportunistic for us.
We we haven't we don't really view it as just by you know system systematically every week or every month X amount of shares we're gonna look at times. When we think it makes sense to step in and do it we are committed to it as we said before in and would expect that to especially given our strong cash flow history and expectations going forward.
That'll be a part of the mix.
Can I ask how you came to the number for <unk> for $200 million you know why not 400, why not 500, given the flex on the balance sheet you know.
Yeah, I you know look I, that's a that's a good that's a fair question I think we just we just looked at it as you know where we were at the time, where we you know.
It just was a number we packed I I don't know if there's any real heavy science behind it other than then.
It's just going to be part of we've committed to $2 50 a year.
You know minimum and you know we may not do that all in one fell swoop, but there.
There could be times going forward, where we have we have a bigger chunk like you.
You've mentioned, but it just.
No no particular reason other than we just felt like that was a good number for the quarter.
Okay. Thank you Mike.
Might just brag on the team Rick real quick I mean part of the volume right. As we continue to think about it as a global system. So you know one. These these heavy investment in fixed assets as the team. The industrial team has done a phenomenal job of having the investments in asset health in having the assets up and ready to run.
The kpis are better on important things like unplanned downtime and then the teams are working globally that even.
It's tough as margins have been in China, and managing that long.
Supply chain that when the margins have been there on the cash side, they've done a great job of blocking those in as tough as it's been in Europe with energy prices being so volatile and margin. So volatile. The team has been very agile and done a great job of managing our footprint between North America, and South America, and Europe in order to walk though.
Margins in in and be able to run those assets that the industrial team had ready so the coordination and the agility of the team is is how you see those volumes, there and where we are very proud of that.
Great. Thank you.
Yeah.
Thank you and the next question comes from Tom Palmer with Jpmorgan.
Good morning, Thank you for the question.
I guess just to kick off I wanted to get your thoughts on how shipping delays on the Mississippi River affect your business both opportunities and headwinds.
Yeah, it's yeah.
Yeah, it's definitely.
Adding more complexity to an already complex situation.
Of course, it's not unique to us and that is part of having a global system of course, it's.
Shifted things to the PNW has also shifted things to South America I mean, this as you know one of the things that with what's happening in the Black Sea and now with the logistical problems with the river here in North America.
Our strong South American footprint, which is always really important to us, but it's never been more important and we you know we saw that even when the farmer.
In Argentina, it was liquidating.
Sorry beans earlier.
Through the soy dollar.
Those exports then we're able to to get to China when things were tight in North America. So it is about flexing that that global system and then you know the margins are already good in North America. So of course, we're a product can't move to export where were running as hard as we can to processing to be able to continue to have the <unk>.
Bids out there for the farmers.
Great. Thank you.
Then I wanted to ask on the on the soybean oil demand side. So we heard yesterday from a large renewable diesel operator that their plant has started using soybean oil as feedstock there are variety of plant either ramping production or nearing completion on the R&D side.
What are you seeing in terms of soybean oil demand is it kind of steady state over the past couple of quarters are you starting to see increased demand pull from the biofuels industry. It sounds like you've got some visibility at least a couple of quarters out here in terms of your book.
Or are you seeing any signs of demand destruction from the food industry to offset that that increased biofuels pool.
Yeah, Yeah, I can take that Tom start yeah, we haven't really seen any decline even on the food the food side.
Energy continues to inch up a little bit as a percentage of the total refined that we're selling but it hasnt been a dramatic shift yet.
And but but what's more interesting is.
There's more demand further out on the curve for soybean oil and so when you look out and typically you look at where we lock in our crush going forward, you know X amount per quarter, and usually theres not a lot locked out beyond say one quarter or two there's been a lot of interest in soybean oil pricing out beyond the next quarter or two and.
More than we've seen.
And obviously, we're being very deliberate about what we're willing to price win but the demand is out there and and it does continue to grow steadily and we haven't seen any any.
Decline or lack of interest from either the energy or the food industry at this point, so we're pretty optimistic about the.
The trend where we're out here.
Alright, thank you.
You bet.
Thank you and then I suppose it comes from Steve Byrne with Bank of America.
Yeah. Good morning, Thanks, Salvator Tiano filling in for Steve Hi, Greg Hi, John Good morning.
My My first question is little bit following up on the renewable fuels.
Hum.
Completion reduction that kind of changing the crabby traction from 2025, I think moving to more Ci base credit as opposed to fly them.
Mom for renewable fuels do you think that at least will change the demand for different vegetable loans like soybean or even keep the same device.
As an option how do you see this changing the landscape for demand in the next few years.
Yeah.
Yes, all of the and push reduction hasn't hasn't played out yet I think mid no. We're going to see some of the final word from E. P E. But net net it feels are friendly to Biofuels in general and then I think the other thing we're watching as you know.
Canola oil out of Canada of course is a big strong demand.
From the food side and that continues to work down and into the U S. But seeing if if canola ends up getting a pathway.
Into renewable diesel, which would also be friendly overall demand, but we will see how all the details play out but right now feels a net net positive.
And expect that to continue yeah, and I would just add that you know there.
The lower Ci feedstocks or do you think about primarily used cooking oil and animal fats tallow is things like that.
There is a limited amount of that and ultimately as all of this renewable diesel ramps up the one the one certainty that they have would be supply of soybean oil on a large scale and ultimately you know everything will price probably off a ci score, but soybean oil is going to be a big demand Ah.
Supply base for the industry and to Greg's point.
Canola oil finds a pathway that's good for us because we are big canola processor in Canada, and we had a lot of canola oil.
And ultimately you know the consistency of supply to be able to provide large large volume to these these massive renewable diesel production facilities is going to be important and and more position, obviously very well to take advantage of that.
Okay Perfect I also wanted to touch base on the price of soybean oil.
I mean, it's more than double what it was I guess normalized base years ago.
But the curve still how's it going down to the 15th I think cents per pound by 'twenty 'twenty four you discussed how there's more demand.
There seems to be more demand emerging start there out for oil than as usual.
Do you think that actually the prices a couple of years out kind of stay higher.
The levels of around 70 cents or used car pricing so it would be non correctly.
Well I think.
No.
As we are as we look at our outlook right.
Like I say, we're smarter than the market. The market is the market now you do need to look not only at the futures, but you need to look at what the cash markets are doing.
And AG markets are in general are always.
A more liquid and probably a better predictor.
As you know 90 to 180 day.
The market as the economics become become more clear and as there is less certainty.
The market reflects that at times, but you know.
The market and the market is the market, yeah, and I would just add you know that far out there's really no liquidity. So it's probably not a real indicator of ultimately where things will end up you know as you look at the curves generally has been inverted on the crush.
But when you get into the cache things have been extremely robust as it's rolled forward. So it's pretty hard to imagine.
Impossible to predict that far out but to Greg's point I think we're going to see we expect to see strong demand further out and obviously the market will adjust to whatever the smbs are at the time.
Okay, great. Thank you very much.
Thank you.
Thank you and the next question comes from Steven Haynes with Morgan Stanley .
Yeah.
Hi, good morning, everybody and thanks for taking my question I was wondering if you wanted to hear your thoughts on the Brazil, China Corn agreement and you know just any kind of thoughts on how that would impact your footprint and broader trade dynamics. Thank you.
Sure.
Look I think it makes complete sense for China to add another origin of being able to to have Brazil corn available in the corn crop continues to grow in.
Grow in Brazil, and I think we believe those volumes will grow long term we really.
We love, our South American footprint in Brazil, and Argentina.
So we will be prepared.
We will be prepared to serve.
From there when the market works and you know.
As part of a global system. We want every you know every origin every destination to be available because that's that's what's best for for both the farmers and the consuming customers. So.
That'll be a that'll be a positive over the long term and we think it makes sense.
Okay.
Thank you.
Thank you.
Thank you.
And the next question comes from Sam Margolin with Wolfe Research.
Good morning, Thanks for taking my question.
No matter what.
I wanted to ask about processing and more on the R&D.
D a theme.
Sort of an unusual environment going on two years now with.
With soybeans and processing, where the oil is really carrying.
Lot of the value in and meal was almost sort of subsidized by oil and I I want to know if you think that's sustainable or if you know meal has to catch up.
And you know bridge and even higher crush margin or if this is kind of a new normal because you know the energy market is now such a big demand center for the commodity.
Yeah, Sam Thanks This is John .
You know oil certainly has become a bigger part of the crush it has probably been hovering say in the 45% range in terms of contribution to overall crushed whereas historically it was much less than that and I think over time, you know our expectation has been that that oil will continue to be and perhaps could even be a bigger part of the crush.
Going forward as demand increases around renewable diesel production and and I I mean, certainly not a laggard today by any means and meal demand has been very strong as well and that's why you're seeing especially in the U S. You know.
Incredibly strong crush margins overall, because both oil demand and meal demand had been robust.
Yeah, and over time that mix will move around a little bit here and there I think sometimes we see it get as high as 48% on oil contribution and down in the low forty's, but it's been.
<unk> 40 here for a while and you know could it go over 50 in the future maybe a hard to predict today, but but it'll it'll depends certainly on meal. The band will be the driver for that.
Okay. Thanks, and then I was wondering if I could.
I ask for a little more detail about China since it's come up a couple of times on the call and specifically with merchandising and you know you mentioned that merchandising had a really strong a.
Fourth quarter last year, and you know incidentally, China was experiencing kind of a very rapid reopening throughout the second half of 'twenty, one and so.
I was wondering if you know maybe if trying to really accounts for the entirety of your sort of year over year view on merchandising and you know maybe a little more caution into the end of this year and if so what does that mean for merchandising if we get a China reopening next year and and you know a faster pace of demand.
<unk>.
Yeah, I think there's probably two big drivers China is definitely one of them of course, they are an important part of the global demand picture and so when they when they are slow down as they have been it definitely has a.
It has a trickle down effect. So yeah, you got to believe we'll get beyond the COVID-19.
Policy, there eventually and see demand rebound and yeah that that should be constructed. The other is just the amount of uncertainty in markets overall things like even the the corridor in Ukraine will it remain open and what does that mean to the flows.
They are coming from from a supply and demand and that uncertainty is really driven buyers and sellers to be much more spot.
Which also is a tougher environment I think for merchandising. So I think if we get some direction around some of these things than you maybe start to see buyers and sellers go out farther on the curve.
Start to see maybe that demand growth out of China and in both of those could be positive.
Got it thanks, so much.
Thank you thanks Sam.
Thank you and the next question comes from Chris Shaw with <unk> Crespi Hardt.
Hey, good morning, everyone. How are you doing.
Good morning, Chris Good morning.
I was curious on.
Just very briefly the argentinians soy dollar program.
That might have been the source of why you had lower crush volumes in Argentina, but just more broadly how did that whole program at what sort of impact they have on the quarter for both you know.
The overall South American business, maybe just the market in general, but and does that are there any sort of lingering effects of that just it seemed like oh.
You understand what the what the impacts of that where and how that just not for the market and for you guys specifically.
Yeah.
It definitely it definitely had a had a big impact right.
Armour had not been.
Commercializing their soybeans.
That had been been hard on on volume.
What we saw with the sore dollar program was that the farmer commercialized.
A lot more beans than than anyone expected and that allowed not only ourselves in and you know the industry to reestablish.
The quantities, we needed for crushing here going forward, but that also saw them move into the exports you saw some export of beans happened.
So that was helpful on the near term of course now.
Farmer once once they've they've had that opportunity now they've completely quit selling.
We're a little dry over there that also will have them holding onto cross, but now, though they'll wait and see what's.
What's next so we pulled forward some of that selling.
You know, we've got ourselves positioned to be able to crush here for a while but if you look at the replacement margins. There are of course not not good.
Right now so we'll see when the next wave of selling comes in that will either be government, driven or something improving in the weather and the farmer feeling better about overall lessen these going forward.
And when they had the program did that then depressed business in Brazil, just because youre doing and theres, so much coming out of our Argentina, including exports there.
You know theres always a little interplay between Argentina, and Brazil, but that was kind of right at the time, where.
Things were tightening up in North America, and the concerns about North America because of the dryness.
The Mississippi River system, I think we saw river levels, the lowest or lower than actually back to 2012, and so some of that export that got pushed out actually.
It was filling that gap.
Some of that North American export now maybe pushed out later, so things kind of actually fell.
You know from a global standpoint kind of fell into line.
Although I don't think there was any careful planning it was a little bit of.
Little bit fortuitous.
I appreciate the color. Thanks.
Yeah. Thanks, Chris Thank you.
Thank you and the next question comes from Ken Zaslow with bank of Montreal.
Hey, good morning, guys.
Good morning, Ken.
I just wanted to touch base on the refined oil Morgan.
You talk about how that progresses over the next couple of years and then when I think about it I look at your base line number.
$400 million and you're at a run rate of 700 $800 million I'm trying to figure out how those two kind of align it just seems like yeah.
I would actually think that there's a possibility that that margin can actually go higher but you're kind of indicating that you know $100 million baseline. So I'm just trying to figure that out.
Yeah can I.
$400 baseline was built on the premise that at some point refining margins are going to go back to historical levels.
And that's not we're not necessarily predicting that that we're just saying that in our baseline that's our assumption that it will and certainly we don't expect that to happen in the next couple of years certainly in and in fact, I think to your point, it's not a straight line and I think we do expect you know a pretty robust margin environment for refined oil.
Here for the foreseeable future and so we may very well have to revisit that at some point, but right now we're just saying that if all the production gets built in an S. N D is get more imbalanced down the road.
And the the refiners build their own pretreatment capability, we could see that margin.
Decline to more historical levels.
May not we'll see I mean, I think things have been a little bit slower on the pre treatment side.
And that's good for us and it gives us an opportunity to continue to to get closer to those customers and work with them on an alternatives other than building their own.
Yeah, I think when we talked.
John talked a little bit about it but yet.
<unk> more to build pretreatment and taking longer to build so one cross more the economics are different on whether they should build it or not some of the.
The rumors we've heard of projects being at least delayed if.
If not you know not stop that's what gives us some of the confidence and pushes that.
Out into the future and then I think you know this is really a new industry, that's developing and I think as they figure out how these different feedstocks work and work in their refineries and affect their catalysts.
Their economics that we'll continue to see the market develop and we've got all the oils, we've got them at quantity.
We're working with with multiple parties. So we like we like where we're positioned.
When you we negotiate.
My understanding is that you go through a process right that there's a negotiation process with a refined oil.
And you guys Lockheed in I think for a period of time, so will there be another reset as you kind of go to the next negotiation I don't know if it's three months six months 12 months whatever it is is there another process or how does that play out it just seems like there's actually more opportunity.
Well I don't I don't think that the fuel customers. If you think about them a lot different than feed customers, our food customers right I think it depends on on the company on whether they're more comfortable buying spot or whether they want to.
Lock in the Overages or whether they want to lock in flat price or how far out on the curve. They are so I don't think we can I don't think we can generalize. It is really company by company. So you've you've constantly got business Rolling you know at times, sometimes it'll extend depending on you know their.
They're in the markets and R.
Our markets are on feedstock, where it can go shorter and be more spot or go out farther but it's kind of continually.
<unk> continually going forward and you know what we have right now is on the refine refine especially oil side is slightly more than normal booked here in Q4.
And we've got a more volumes and price booked out into 2023 than normal and so that's some of our confidence in calling me a at least $13 50.
Okay and then my last question is on capacity utilization rates.
Was there any place around the globe that you thought you were underutilized we largely.
Kathy you know largely used during the quarters, how do you kind of think about that in and I think your competitor said that there were some shutdowns and idling of plants around the World did you guys have the same impact and just how you guys. Because you said that you're operating a little bit more efficiently. So I just wanted to touch base on that and then I'll leave it there.
Yeah, you know we look at the total in global so globally. Yeah. We're proud of the total volume we ran the total capacity utilization, but yes sure. It can it can always be better right, where we're shut down in the Ukraine.
Margins have been tough in China, we've got more capacity, we could've ran their margins had been better than you.
We're seeing animal our margins start to return there in China. So we do expect that to be better and that demand will see.
Into 'twenty three.
And then in Argentina, right as we talked about because of the farmer marketing, we had not ran quite as hard.
And then managing some of the energy volatility in Europe , we didn't run quite as hard but that being that being said when you add it up in total I think the way our team executed and took advantage of the opportunities that were there.
Was fantastic and so you know we're proud of that and we'll continue to stay focused in what's a.
A very dynamic and challenging world.
To help people manage food security and help our customers at both ends of the value chain and be successful.
Great I appreciate it thank you guys.
Thank you Kent.
Thank you. This concludes the question and answer session I would like to turn around our Florida, Greg Heckman for any closing comments.
Thank you I'd just say, we continue to be so proud of the team's commitment and their execution, especially in light of the current market environment. So far.
We are proud of the model, we've got here at bogie and our ability to continue to capitalize on the opportunity. So thank you very much and everyone have a great day.
Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.