Q4 2022 Archer-Daniels-Midland Co Earnings Call
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Speaker 3: As a reminder...
Speaker 4: This conference call is being recorded. I would now like to introduce your host for today's call, Megan Britt, Vice President Investor Relations for ADM. Ms Britt, you may begin.
Speaker 5: Thank you. Hello and welcome to the fourth quarter earnings webcast for ADM.
Speaker 6: Starting tomorrow, a replay of this webcast will be available on our Investor Relations website. Please turn to slide 2, which says that some of our comments and materials constitute forward-looking statements that reflect management's current views and estimates of future economic circumstances, and conditions.
Speaker 7: company performance, and financial results. These statements and materials are based on many assumptions and factors that are subject to risk and uncertainties.
Speaker 8: ADM has provided additional information in its reports on file with the SEC concerning assumptions and factors that could cause actual results to differ materially from those in the presentation. To the extent permitted under applicable law, ADM assumes no obligation to update any forward-looking statements as a result of new information or future events.
Speaker 9: On today's webcast, our Chairman and Chief Executive Officer, Juan Luciano, will discuss our full year accomplishments and share detail on our priorities for 2023. Our Chief Financial Officer, Vikram Luther, will review the drivers of our financial performance at the segment level and review our cash generation and capital allocation results.
Speaker 10: Juan will have closing remarks regarding our planning framework for 2023, and then he and Vikram will take your questions. Please turn to slide 3. I'll now turn the call over to Juan.
Speaker 11: our planning framework for 2023, and then he and Vikram will take your questions. Please turn to slide three. I'll now turn the call over to Juan. Thank you, Megan.
Speaker 12: This morning we reported very strong fourth quarter adjusted earnings per share of $1.93.
Speaker 13: Adjusted segment operating profit was 1.7 billion dollars.
Speaker 14: Our full year adjusted EPS of $7.85, adjusted segment operating profit of $6.6 billion and trailing four quarter average adjusted ROIC of 13.6%, demonstrate once again the great work of our global team of dedicated colleagues.
Speaker 15: who manage unprecedented market disruptions to deliver an outstanding year.
Speaker 16: Our full year operating cash flow before working capital was $5.3 billion.
Speaker 17: This strong cash flow and the disciplined management of our balance sheet allow us to continue to reinvest in our business with 1.3 billion in capital expenditures and return cash to shareholders.
Speaker 18: In total, we returned $2.3 billion to our shareholders in the form of dividends and share repurchases in 2022.
Speaker 19: Next slide, please.
Speaker 20: With the expectation of continued strong cash flow, today we are announcing a 12.5% increase in our quarterly dividend to $0.45 per share.
Speaker 21: We are proud of our record of 91 years of uninterrupted dividends and 50 consecutive years of annual dividend increases.
Speaker 22: I'd like to thank our shareholders for their continued support of ADM.
Speaker 23: Next slide, please.
Speaker 24: When I examined 2022, our ability to drive structural growth in earnings and improvement in ROIC was supported by key strategic accomplishments across the enterprise, particularly the progress we made on our productivity and innovation objectives.
Speaker 25: Our productivity work in 2022 included enhancing our operational resilience.
Speaker 26: including through stabilizing our plant operations and streamlining our operating systems.
Speaker 27: In order to meet growing customer demand and drive efficiencies, we delivered multiple projects to enhance our operational footprint.
Speaker 28: from modernization to improving a scheduled downtime to capacity expansion.
Speaker 29: We completed our Marshall Minnesota modernization.
Speaker 30: Opened a new millhouse in Clinton.
Speaker 31: Completed our Quincy refinery expansion.
Speaker 32: and improved output and yields at our Rondonópolis diesel plant in Brazil.
We also continued to optimize our North American milling footprint.
As you know, we also introduced a new billion dollar challenge in 2022.
There is no clearer demonstration of how our colleagues and culture are driving returns than the fact that thousands of ADM team members from around the globe took the initiative, stepped up and identified opportunities that unlocked more than $1.6 billion in cash in 2022.
on innovation.
Our accomplishments include a focus on capturing the benefits of organic growth investments and M&A as we continue to get closer to our customers and extend our capabilities to meet growing global demand for our products.
Our nutrition business continues to outpace the industry.
with 18% constant currency revenue growth for the full year.
We delivered an impressive 26% in year-over-year revenue growth in BioSolutions.
The portfolio of acquisitions we made in the prior year continued to deliver OP above our financial projections.
and we advance targeted production capacity expansions to meet growing customer demand.
We announced expansions of our alternative protein capabilities indicator, Illinois, and starch production in Marshall, Minnesota.
We completed our alternative protein expansion in Serbia and are about to launch our expanded probiotic capacity in Valencia, Spain.
And we continue to expect our joint venture crash and refining facility in North Dakota to be operational by this year's harvest.
Slide 6, please.
Slide six, please. Now let's look ahead.
We have a robust plan for driving enduring value creation in 2023 and beyond.
In productivity, our work has a common theme.
changing the way we work by standardizing, digitizing, and automating our manufacturing plants and our offices alike.
I previously mentioned our successful Marshall modernization.
That was the blueprint for our wider work to unlock value across our production footprint through enhanced automation.
more sophisticated control systems and the increased use of analytics.
We have now approved the scope for the first two years of the program, encompassing 18 boarding facilities.
We continue to expect double-digit returns from this important initiative.
And we are continuing to advance 1ADM, which is enabling us to improve our processes and expand capabilities across the value chain.
2022 was an important year for our 1ADM business transformation.
We completed several rollouts and we're seeing benefits in areas ranging from indirect procurement to go-to-market strategies to grain merchandising.
In 2023, we will continue to expand the breadth and scope of this work, which is empowering our businesses to deliver profitable revenue growth and higher margins.
Next.
We are focused on maintaining our structural growth momentum via our innovation work.
As you may recall, we've spoken in the past about our strategic growth platforms.
sustainability, differentiated grain, alternative proteins, biosolutions, microbial solutions, and microbiome modification.
These growth opportunities go through a natural evolution.
When new, we launch them at the corporate level.
As they mature, they become more embedded in our businesses.
Differentiated grain is now firmly a part of our Ag Services analysis segment's everyday work.
BioSolutions is growing within carbohydrate solutions. Alternative proteins and microbiome are pillars of nutrition.
With these efforts maturing in the businesses, we are able to focus on other opportunities.
One of the most important is decarbonisation.
which is a critical component of our sustainability growth platform.
and it's driving the evolution of our carbohydrate solutions business.
Our goal is to reduce the carbon intensity of our assets and value chain in order to be the preferred partner in low carbon intensity feedstocks for a growing demand base.
We have made several announcements to mark milestones toward this gold in recent years, including
our regenerative agriculture efforts, which enrolled 1 million unique acres over the past year.
regenerative agriculture efforts which enrolled 1 million unique acres over the past year. Our strive35 goals.
our initiatives to connect and expand our carbon capture and storage capabilities, and our heat and energy project indicators.
We are looking at multiple other pathways to reducing our carbon intensity, like more sustainable energy sources for our facilities.
and our efforts aren't just in the US.
We have plans for other regions as well, including some EMEA projects we hope to speak about in the future. All of these projects contribute to our ability to offer low carbon intensity feedstocks and that is allowing us to continue to advance our work to transition our dry mills to produce sustainable aviation.
like with LG Cam.
And even as we advance our decarbonization plan,
We are always looking at new ways to help solve our world's challenges for food security, health and wellbeing, and sustainability. For example, we are continuing to explore opportunities around precision fermentation.
We're always looking at new ways to help solve our world's challenges for food security, health and well-being, and sustainability. For example, we're continuing to explore opportunities around precision fermentation, which we used to call microbial solutions.
in which microbes, rapidly growing, grown in fermenters fed by dextrose, transform the sugars into a wide variety of products for food, feed and fiber.
That's a longer term horizon for ADM, but it gives us a hint of the kind of opportunities we see in the years ahead.
Now, I would like to turn the call over to Bikram to talk about our business performance. Bikram?
Now, I would like to turn the call over to Vikram to talk about our business performance. Vikram? Thank you, Juan.
and the call over to Vikram to talk about our business performance. Vikram? Thank you, Juan. Least done to slide seven.
The Ag Services and Oil Seeds team capped off an outstanding year with substantially higher year-over-year results in Q4. Ag Services results were higher than Q4 of 2021.
Low water conditions reduce North American export volumes, partially offset by the South American team which executed well to deliver higher margins and volumes.
Global trade results were lower than the strong fourth quarter of 2021, with lower ocean freight results partially offset by higher results in EMEA origination and destination marketing.
The business benefited from a $110 million legal recovery related to the 2019 and 2020 closure of the Reserve Louisiana Export Facility.
Crushing results were more than double those of the prior year period. In North America, strong export volumes for soybean meal and growing domestic demand for renewable diesel contributed to strong margins.
In EMEA, oil demand powered strong rapeseed margins, more than offsetting higher energy costs compared to the prior year.
Expanding margins drove negative timing impacts in the quarter of approximately $40 million.
RPO results were significantly higher year over year as the business continued to execute well to meet demand for food oil, renewable diesel in the US, and biodiesel globally.
Equity earnings from Wilmar were much higher versus the fourth quarter of 2021.
Looking ahead, we expect ASNO results for Q1 to remain strong.
similar to last year's very strong quarter, led by continued strength in crush margins and RPL.
Ag services is likely to be lower year over year, particularly in light of very strong global trade results in the prior year quarter.
likely to be lower year over year, particularly in light of very strong global trade results in the prior year quarter. Slide 8, please. Slide 9, please.
Carbohydrates solutions had a strong 2022, with full year results higher than 2021. For the quarter, results were substantially lower than the fourth quarter of 2021 due to pressured industry ethanol margins.
The starches and sweeteners sub-segment, which includes ethanol production from our wet mills, delivered much higher year-over-year results.
The North America business delivered solid volumes and strong margins in both starches and sweeteners.
partially offsetting lower ethanol margins. The EMEA team effectively managed risk and delivered improved results on better margins in a continued dynamic environment.
The global wheat milling business delivered higher margins driven by solid customer demand. Vantage Co processess results were substantially lower as higher ethanol inventory levels pressured margins.
especially compared to the very strong marginal environment in the fourth quarter of 2021.
Looking at the first quarter for carbohydrate solutions, we expect continued solid demand and strong margins for starches, sweeteners and wheat flour. Ethanol margins are currently pressured due to high industry inventory levels.
If industry stocks come back down, results for the quarter could be similar to Q1 of 2022. If the margins remain pressured, results would likely be lower.
On slide nine.
The nutrition business continued its strong growth trajectory in 2022.
ADM demonstrated that it remains the provider of choice in nutrition for systems, as our growing pipeline and continued strong win rates delivered full year revenue growth of 18% on a constant currency basis.
The business continued to outperform industry growth levels and delivered 11% higher profits for the full year on a constant currency basis.
For the fourth quarter, revenues grew 11% on a constant currency basis.
Q4 operating profits were significantly lower than the prior year quotas.
Human nutrition results were lower than those of the fourth quarter of 2021.
Flavors results were similar to the prior year, as strong revenue growth helped offset demand fulfillment challenges.
Specialty ingredients continue to see strong demand for its product portfolio, including plant-based proteins offset by inventory adjustments.
Health and wellness was higher year over year, driven primarily by the BioACTIS portfolio, including the results from the deerland acquisition. Animal results were substantially lower than the prior year quarter, primarily due to the lower margins in amino acids driven by recovery in the global supply of lysine.
Pet nutrition volumes are lower in Latin America, partially driven by demand fulfillment challenges.
Feed results were stronger, driven by APAC in Latin America, partially offset by the impact of softer demand in India.
As we look ahead, we expect overall nutrition results in Q1 to be lower than the prior year's record first quarter, with human nutrition delivering similar year-over-year results on strong flavors and SI growth, and lower animal nutrition results primarily due to weaker margins in amino acids.
I want to take a moment to expand on our view of nutrition in 2023.
Nutrition is expected to continue on a positive growth trajectory for full year 2023, including 10 plus percent profit growth and a similar level of revenue growth. The growth is likely to be led by human nutrition and to be weighted in the back half of the year as the first half will see headwinds in animal nutrition.
due to the continued impacts of weaker margins in amino acids and because we will see increasing recovery and demand fulfillment as we move through the year.
Slide 10, please.
Other business results for Q4 were significantly higher than the prior year's fourth quarter.
Higher short-term interest rates drove improved earnings in ADM investor services and captive insurance experienced favorable underwriting results and lower claim settlements versus the prior year.
In the corporate lines, unallocated corporate costs of $299 million were higher year over year due primarily to higher IT operating and project related costs and higher costs in the company's centers of excellence related to growth initiatives.
Other corporate was favorable versus the prior year, primarily due to higher contributions from foreign currency related hedge activity and lower railroad maintenance expense.
Corporate results also included losses related to the mark-to-market adjustment on the Wilmar exchangeable bond and severance totaling $6 million.
Net interest expense for the quarter increased year over year on higher interest rates.
We expect corporate costs for 2023 to be around $1.5 billion, driven primarily by inflation and higher interest expense.
Other business performance should be higher than 2022, offsetting a significant portion of the increased corporate costs as higher interest rates positively impact our ADM-IS business.
The effective tax rate for the fourth quarter of 2022 was approximately 16%.
compared to 21% in the prior year. The decreased rate was driven primarily by changes in the geographic mix of pre-tax earnings in addition to lower discrete tax expense listed the prior year.
For 2023, we expect our adjusted tax rate to be between 16 and 19%. Next slide, please. Year-to-date operating cash flows before working capital of $5.3 billion are up significantly versus $3.9 billion over the same period last year.
Our net debt to total capital ratio is about 25%, and we continue to have ample available liquidity.
Our strong cash flows and balance sheet have enabled continued investment in the business, with $1.3 billion in capital expenditures for the full year.
We currently plan to maintain capital expenditures at about $1.3 billion in 2023 and continue to have significant financial capacity to pursue strategic growth objectives.
We have been continuing to return capital to shareholders.
We distributed $900 million in dividends and repurchased almost $1.5 billion of shares in 2022.
We are planning $1 billion in opportunistic buybacks for 2023, subject to other strategic uses of capital. We are planning $1 billion in opportunistic buybacks for 2023, subject to other strategic
planning $1 billion in opportunistic buybacks for 2023, subject to other strategic uses of capital.
Thank you Bikram. Next slide please. 2022 was a truly outstanding year for ADM.
As we look forward to 2023, we expect another very strong year.
There are a number of market factors that we see as relevant for shaping our performance.
We still see tightness in supply and demand balances in key products and regions.
We see strong demand for vegetable oil driven largely by robust demand for biodiesel and renewable diesel.
Resilient food demand should drive higher volumes and margins in starches, sweeteners and wheat milling.
We see continued strong demand for ethanol, including positive discretionary blend in economics.
And as Vikram mentioned, we expect 10 plus percent constant currency OP growth from nutrition.
We have a strong playbook powered by our deep expertise and our unparalleled footprint and capabilities.
to manage a dynamic market environment. Our healthy balance sheet provides ongoing optionality as we continue to pull the levers under our control to deliver results. And we expect positive contributions from productivity and innovation initiatives across the company that will help us drive value in 2023.
Taken together, we expect to deliver another very strong year in 2023.
Taken together, we expect to deliver another very strong year in 2023. With that, Bailey, please open the line for questions.
Thank you. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If for any reason you would like to remove that question, please press star followed by 2. Again, to ask a question, please press star followed by 1. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question.
Our first question today comes from the line of Ben Bienvenue from Stevens. Please go ahead, your line is now open.
Hey, thanks. Good morning, everybody.
Hey, thanks. Good morning, everybody. Morning, Ben.
So I want to ask in the nutrition segment your guidance I think one you said 10% growth in constant currency two questions I have one is at the current exchange rate levels what would that imply in just a reported growth rate?
And then secondarily, just thinking strategically, you're talking about some of the expansions that you're making in organic growth investment. What does your appetite for M&A look like in that segment? And how fertile is the landscape for potential M&A?
Thank you Ben. That business has been a very successful story at the customer level for many, many years. We continue to drive higher growth rates than the industry we participate in. So that has not changed. The robust pipeline goes there and we have achieved all that Ben.
through a very disciplined strategy of bolt-on acquisitions and organic growth.
So we did four bolt-ons in 2021. We took the time in 2022 to integrate them and digest them. At the same time in 2022, we started many projects that I highlighted in my initial comments on organic growth. So I will say that will be the pattern that...
you should expect to us. I mean we have stayed many years in our balanced capital allocation and in this nutrition pace if you will of bolt-on and M&A and taking some time to digest some of those things. Very pleased to report that the four acquisitions we made in 2021 are executing or delivering ahead of their business model.
So we're not planning to change the pace for the strategy that we have had so far. The projects that we are making selective expansions on or bringing to life soon are all going well, even despite the long lead time equipment that sometimes you face in the industry.
We've done that in anticipation of all that. So we feel very good about being able to support with capacity the growth in demand that we see in the marketplace from our participation.
Okay, and the question on the constant currency versus reported – Yeah. – that you can offer there at current exchange rates?
Effectively, Ben, we don't see a lot of change in currency for 2023. Yeah, you've seen some weakness in the US dollar, but you can assume that even on a report basis right now, we'd assume similar growth rates in OP.
Okay, great.
Okay, great. Can I ask one follow-up or is that too greedy?
Go ahead Ben. Okay I actually want to shift gears a little bit and pivot to starches and sweeteners. That business was fantastic in the quarter. Your four commentaries sounded quite constructive as well. Could you give us a little bit more color on how you see that evolving into 2023 and do you think you can achieve margin expansion there?
Based on the customer contracting we've seen in the Sweeters & Starches portfolio, we do see strong volumes and margins.
With the improved mix, we talked about bio solutions expansion. We actually had 26% year on year growth and bio solution margin remained very robust. With the improved mix, we actually see a potential in the sweetness and starchiness business to have higher volumes and margins in 2023.
Clearly, ethanol remains uncertain and we've seen recently inventory levels remain high and that's actually pretty similar to January of last year as well. But we're still constructive in terms of outlook for ethanol given what's happening with the RVO framework, the fact that gasoline demand is expected to be roughly flat versus 2022.
Blending economics remain very favorable, and frankly, export volume should be similar to last year, around 1.4 billion gallons. So that's a quick snapshot of Alco for 2023.
The next question today comes from the line of Adam Sandelson from Goldman Sachs. Please go ahead, your line is now open.
Yes, thank you. Good morning everyone.
I wanted to hopefully tie together some of the forward comments that you made and see just to help calibrate us on the net impact at the earnings level. So nutrition is going to have kind of 10%
Constant currency, profit growth, not much FX right now. Other and corporate and interest kind of basically seemingly netting out to roughly flat year over year. That's right.
flat to maybe up slightly year over year. So I guess it's the two pieces of the puzzles that are that are missing from their egg services and oil seeds profit in carbohydrate solutions. I think ethanol remains somewhat of a wild card on carbohydrates although the rest of starches and sweeteners you sound generally constructive.
Can you help us, Juan, just thinking about a range of outcomes on ag services and oil seeds based on where crush margins are today. I'm assuming an average US crop, no enormous supply dislocation coming out of the US in the second half of the year. Just how...
kind of the profit outlook would be tracking in ag services and oil seeds and if there's anything else on a year on your basis you want us to be considering that'd be really helpful.
Thank you Adam, I think you captured the situation well. I think we continue to see a very strong margin environment in ag services and oilseeds.
You know, 2022, we hit in all cylinders. I think that every piece of our business hit records. When we look at the 2023, we continue to see very strong demand. If you look at North America, North America had a strong meal demand and certainly very strong domestic demand.
to the US given the need that we have here. So all in all, we continue to see strength. Certainly RPO, we're gonna see strong demand. Biodiesel and all that is going, we've seen strong margins and very good volumes for next year.
We do have visibility into this, into the next year given our book. So we feel good about that business. As Vikram mentioned in the commentary, maybe our services, we're planning it a little bit slower than last year, given the exceptional results that we had last year. And, but.
You know as difficult as it is to pinpoint a number Adam given that we have China uncertainty war that has been going on for a year and Certainly weather events that you know We still need to build the US crop and we still need to finish the Latin American crops. I would say We favor more arranged scenarios and in the range of scenarios
2023 falls into a very strong range for us. So I don't know, I will not venture to pinpoint the specific number, but certainly strong range. When you go to Car Solutions, when we talk to our customers, demand for the products is stable. We've been able to have strong margins in all that, where there is...
sweeteners and starches or whether it's wheat milling. When we look at BioSolutions it continues to grow like 26% of revenue and then we see every the margins in the 20% for that business which is a very profitable business that is growing their contribution into cars.
like a little bit like in last year, we start with this time of the year with low margins. But we think that we're gonna have a...
very good incentive for people to blend ethanol. The numbers are there. Rins balances are tight. We'll encourage people to blend. So I think that given the prices that they have, I think that expecting...
export in the range of 1.4 to 1.5 billion gallons per year is reasonable.
And you saw these days, petrobras in Brazil increasing the gasoline prices by 7%, so there's going to be less flow from there to here in all this. So we're still planning for a little bit softer, maybe, car solutions in light of our ethanol forecast. But you know.
conditions could change in ethanol and it could make it a close year. So all in all we continue to see a very strong year for 2023.
The next question today comes from the line of Ben Thierer from Barclays. Please go ahead, your line is now open.
Thank you very much. Good morning, Juan. Good morning, Vikram. Hey, Ben. Good morning.
I just wanted to quickly follow up on the nutrition dynamics you've seen in the fourth quarter and how that translates into one Q and somehow if you could frame it for that medium term growth algorithm you've laid out a little over a year ago during your capital markets day update.
into the second half. Now clearly the 10% you've laid out and what you've talked about, upgrowth.
in 2023, it's kind of below the algorithm. So, can you help us frame how 23 kind of fits within your 25 strategy and where you want to go? Is that just a small dip that can then be recovered or which you need some M&A to get back on track to the target of 1.2 at least by 2025 so that we understand how to think about
we'll be able to work through over the course of 2023 as I talked about.
Specifically, what's important for you to know is that the demand is very, very strong. We talked about the strongest ever pipeline in the human nutrition business and very strong win rates. So of course every category that we play in almost we've got strong demand.
Yes, there is some softening in certain parts of the business, right? We know, you know, aware of dietary supplements, that being a little softer. Plant-based protein growth may moderate a bit from the base we've seen historically, but nevertheless, our growth has been very strong in human nutrition. The challenge we've had is a demand fulfillment.
That's going to take us a while to address and overcome. Animal nutrition on the other hand, we benefited from strong margins in lysine, but in Q4, the compression and margins were sharper and faster than we expected. And that's going to continue over the course of 2023.
So we've got offset back plus drive growth and that's what gives us a slightly below trend line growth for 2023 around 10 plus percent. Having said that, the outlook remains robust and maybe Juan you want to talk about the 2025 perspective.
Thank you, Bikram. Ben, listen, I think you've been witnessing how we built this nutrition business over the years. This is a business that if I take out the last three years, it has been growing OP by 20%, Kager if you will. So it's a business that...
we continue to add layers of capabilities so we can continue to win at the customer front. Whether it's, you know, we go from individual ingredients to systems where we bring functionality to those systems through bioactives, whether we bring sustainability benefits to that through our
said maybe some of the categories soften a little bit, but our ability to gain share, to win faster than those categories has been demonstrated. I think this year we grew revenue significantly higher than the market. So when we look forward, as I said in my, I think one of the earlier answers.
We continue to expect bolt-on M&A and organic growth. We had four companies in 2021. We're building capabilities and new capacity in 2022 that we're going to see on the stream in 2023.
And we're going to continue to grow that. So we haven't deviated from our 2025 plan. And I don't think it will require, you know, massive M&A to achieve there. You will see this steady state. But you know, this is a business that we're building in the middle of a lot of volatility in the market.
This is of course versus the legacy ADM business. It's more complex in the number of SKUs that we have, in the number of customers that we have, in the number of plans and categories that we manage. So when supply chain issues happen or market volatility happen, it's a little bit more complex to fix.
in this business and that's why we expect the first half that's gonna be a little bit subdued when you add the demand fulfillment issues and some of the capability building with the fact that also lightning is coming down, if you will, in prices, at least for the moment. So.
I would say nothing that deviates it. Certainly if you ask me personally, I think management team, are we happy with Q4? I mean, of course Q4 underperform our own expectations. I mean, that's nothing new for a business that again, has been growing 20% per year, CAGR. But, you know, we think that this is just...
a trajectory in the business that continues to win faster than what the market gives us at this point in time. We don't expect a deviation to our long-term plan at this point.
Thank you.
Our next question today comes from the line of Manav Gupta from UBS. Please go ahead, your line is now open.
Congrats on the beat and the dividend hike, shareholder returns matter and you have continuously rewarded your shareholders. My quick question here is and you have kind of alluded to it also is we are seeing a lot of new capacity start up on the renewable diesel side.
I think major projects starting up even last quarter. And then your outlook for both soybean oil and soybean meal, it seems pretty strong right now. Any risks to that and how do you see the year progressing from the perspective of both soybean oil and soybean meal? Is that against the
Thank you, Manuel. Thank you for the question. We continue to see very strong demand across the world, not only for all the oils. I think that if you take the four oils, demand is running harder than production, if you will, globally. So even, I would say, before renewable green diesel happens.
we had already a tight balance sheet from an oil perspective and that has continued.
When you think about the capacity that renewable green diesel is installing, it's going to have a huge pool in soybean oil. And we have found that there is, we have found relatively easy to place the mill in the export markets. And if you look at the market overall, the mill market is a market of like 175 million metric tons and growing. So you can, you can thought why doesn't it consist of You can think Compare the Weiasket market and skinYY SO this is a better word for a specs market. That is just a sample of how werepieceakh Reason why not
soybean meal. So we're still covering only 75% of the expected soybean meal demand out there. So we're looking at this as you can understand very carefully. Remember that I always mentioned it took us two years to assess the Spirit Wood and you know.
and start building it. I'm happy to report that it's going to come online for the harvest. So I would say we look at this, but the demand on both sides, on soybean meal and soybean oil, clearly can support all this capacity. So we continue to see an environment in which...
crash margins will be strong and highly supportive for many many years.
will be strong and highly supportive for many, many years. Thank you.
The next question comes from the line of Steve Byrne from Bank of America. Please go ahead, your line is now open.
Thank you very much. This is Alberto Tiano speaking for us today. So firstly I want to ask a little bit about China and specifically you mentioned the meal demand. So a little bit short and long term view. In the short term I guess with the reopening there etc. do you see actually a lot of demand in China?
a positive momentum for demand for soybean meal or soybeans versus what you saw in the past couple of years with COVID-0. And then long-term actually, you know, we've been reading how Chinese population dropped last year. These volumes speak much better than what is expected.
Thank you, good questions. So on the short term part of the question, we see China will continue to increase imports as if you look at domestic grain prices are at historically high levels, especially now that they are reopening. Of course, a reopening of China could be a game changer for a variety of commodities, not just grains. We look at domestic vegetable oil stocks being at relatively low levels and we have seen during the second half of 2022 an increase in domestic pork prices.
since I would say last spring. So that prompted farmers to increase their herds. So we see that demand in the short term. But again, I think the variability here may be on the upside on how much of the reopening is bringing people to consumption. Of course.
people have been in lockdown almost for two years in China. And you're gonna find the same pent up demand that we saw ourselves maybe since last year when everybody came out of COVID. So I think at this point in time, short term.
China will be probably a positive upside, if anything, to our forecasts.
When you look at the long term and the demographics of China that you describe, probably about 50% of the Chinese population is middle class, what you would consider middle class, and they are in this process of increasing their protein consumption.
our level of consumption. And again, if you look at our lifestyles are converging slowly. So you will expect their protein per capita consumption to grow significantly during this period.
The other thing you need to remember is that we're still going to be 10 billion people on the planet by 2050, which is one of the issues that drives our purpose.
is trying to increase the carbon capacity of the planet, trying to fiddle that. And whether it's in China, whether it's in Africa, whether it's in Southeast Asia, we are a global company. We have a global footprint, and you have seen us continue to expand our destination marketing footprint to serve customers around the world. So.
we will serve the feeding, growing population of the world, whether it is in China or somewhere else. But as I said, I don't expect China to have a decline in the next probably two decades in terms of their demand for protein consumption.
The next question today comes from the line of Robert Mosco from Credit Suisse. Please go ahead, your line is now open.
Hi, thank you. I was hoping to get a little more detail on your forward outlook for ASO. In the slides in the back, you indicate that the front month wood crush is about $75 a ton and that's lower than where it was.......
on your third quarter call. Did that influence your outlook for forward crush at all, the fact that it's come down a bit?
And how can I relate that to what happened in calendar 22?
Yeah, good morning Rob. We couldn't hear you very well, but I get the gist of the question. So listen, I think at this point in time, and as I said before, we have visibility for probably the first quarter and a big part of the first half.
2023 will be another strong year for CRASH, certainly above the long-term guidance that we provided at our Global Investor Day. We also are planning to have an improvement in our process volumes, given some of the operational resilience initiatives.
and we're going to have a Spiritwood online in Q4 and hopefully by, you know, in a couple of, maybe in a couple of weeks and a month we will resume crashing Paraguay. We continue to have a good crash margins in Europe .
Certainly Europe will be helped by the small crop in Argentina. Also I think energy prices have moderated a little bit in Europe given the warm summer. So we are also shifting in Europe as much to soybean crush as we can.
as there is margin there. We also gonna have this year that, we didn't have last year better canola margins.
Canola crash margins certainly, and now that we have a Canadian crop, are more in the, you know, 120 to 140 dollars per tonne in North America, maybe 70 to 75 in Europe . So I would say.
We are having good crash rates, we are having good meal export demand in the US, we are having very strong soybean oil demand here in the US. So I would say in general we don't see any clouds in the horizon for crashes.
The crash business will have a very strong year in 2023.
As I said before, Rob, I wouldn't pinpoint a specific number given the China reopening, given that the played game on the budget
the issues in Ukraine that whether it's not driving crash margins, it may drive energy prices and certainly the crops. We are expecting that Brazil needs to have a big crop that will upset the decline in Argentina and we hope that the US will have a big crop as well, but we still need to go through the weather in both instances.
Yeah, thank you. Thank you and congratulations on a great year everyone.
Yeah, thank you. Thank you and congratulations on a great year everyone.
My question comes down to, we've talked a lot about the bean markets globally and domestically here, but one of the big kind of hangovers right now in the grain market is corn demand and
Obviously, I think Brazil's going to be running out of corn here pretty quickly, and we may have seen some new Chinese demand coming in here for corn, but...
How do you look at, and we have a non-competitive, I think, just from a currency basis, from everything else?
Could you talk a little bit, Juan, about the corn market and how you see the export situation with that particular commodity?
Yeah, I think you call it well. I think that when we had the low water levels in the Q4 that hurt us, of course we lost some bean business, but the corn business basically is going to be with us until the crop in Brazil, the harvest in Brazil comes to it.
has come up with a statement that they don't believe corn for 23 will exceed 18 million tons, which is a far cry from the 29 or 30 that they used to produce, that we expected. So demand continues to be solid out there. And that's the result...
You know we we still as a world we need Brazil to have a good crop of course if there are rains and delay a little bit the harvest of soybeans and may delay a little bit the planting of the next crop But we hope that in your farm and everybody's farm Corn is growing strongly because we need it and and again the US will be exporting a lot of that
from here until probably July . The final question today comes from the line of Steve Byrne from Bank of America. Please go ahead, your line is now open.
Yes, thanks. I'm Dr. Cannon here again. I just want to ask about the press release that was out a couple of days ago about the new bias in the Canadian release, the data 43, I think it's called. I know that you do have a question.
a business where you work with farmers to provide them with fertilizers, etc. But I think this seems to be the first time that you're actually rolling out one of your own proprietary products. So I'm just trying to understand a little bit both your strategy here, would you invest more in products for…
nutrition and crop protection, especially biologicals. And what do you think is the potential market and virtually the earnings potential for ADM?
Thank you for the question. Listen, I think that we continue to...
enlarge our
relationships with customers but also with farmers. As we continue to increase our digital engagement with them...
We also increase the bartering and exchange of many products. We have a good relationship with farmers. We have the trust of the farmers. So every now and then they bring challenges to us. And I think the challenge is of...
you know, biologicals, if you will, given that, you know, we have some work in precision fermentation and things like that, is we're always interested in doing that. So there's always a division out there in ADM, exploring, extending a little bit our franchises and our engagement.
So I wouldn't be surprised to see experiments or tests here and there. And we do that a lot. We do that in products that are B2C, we do that in products that are biological, we do that in products that relate to the farmer. And we continue to expand.
These are things that over the years, they turn out into big businesses. You know, at one point in time, we started with destination marketing. Now it's a big part of our franchise. At one point in time, we started with biosolutions, and now we're making more, a quarter of a billion dollars of EBITDA on that.
At one point in time, we started with differentiated grain that now we call Regen Ag, and now we are in a million acres of that. So I think it's just the innovation part of ADM, and you're gonna see green shoots at that. I'm glad you're paying attention to that. And we're gonna see expansion of those things into the future, so thank you.
So with that, I think that was the last question for the call today. I'd like to thank you for joining us. 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.
This concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.
That C, that proam C C.