Archer-Daniels-Midland Company (ADM) Q1 2023 Earnings Report, Transcript and Summary

Good morning, and welcome to the ADM First Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, 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.

Thank you, Bailey. Hello, and welcome to the first quarter earnings webcast for ADM. Starting tomorrow, a replay of this webcast will be available on our Investor Relations website. Please turn to Slide 2. Some of our comments and materials may constitute forward-looking statements that reflect management’s current views and estimates of future economic circumstances, industry conditions, company performance and financial results. These statements and materials are based on many assumptions and factors that are subject to risks and uncertainties. ADM has provided additional information in its reports on file with the SEC concerning assumptions and factors that could cause actual results to differ materially from those in this 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. On today’s webcast, our Chairman and Chief Executive Officer, Juan Luciano, will discuss our first quarter results, provide ADM’s perspective on the current market backdrop and share progress highlights on our strategic priorities for the year. Our Chief Financial Officer, Vikram Luthar, will review the drivers of our financial performance at the segment level and review our cash generation and capital allocation results. Juan will have some closing remarks, and then he and Vikram will take your questions. Please turn to Slide 3. I’ll now turn the call over to Juan.

Thank you, Megan. And thanks to all those joining us for the call today. This morning, ADM reported strong first quarter adjusted earnings per share of $2.09, with an adjusted segment operating profit of $1.7 billion and a trailing fourth quarter average adjusted ROIC of 14%. Our performance demonstrates once again the advantage of ADM’s uniquely integrated value chain and broad portfolio. Along with the team’s ability to respond nimbly to opportunities aligned to the three enduring trends of food security, health and well-being and sustainability. All of this was achieved in a fluid economic environment where ripple effects are being felt from both inflationary and recessionary pressures, shifts in global demand and trade activity and the ongoing war in Ukraine. Our team continues to find ways to rise above these challenges and meet our customers’ needs for consistency, quality and innovation at every turn across our business units. We have wrapped up Q1 with a strong balance sheet, healthy cash flows, and we are on track for our 2023 and long-term strategic growth plans and we continue to pursue growth opportunities and increase shareholder returns in alignment with our disciplined capital allocation framework. This quarter, we also announced several exciting milestones in our continued growth and innovation strategy, including the opening of the world’s first probiotic and postbiotics production facility in Valencia, Spain, which increases our global production capacity by a factor of five. Agreements with ADM ventures, partners, BrightFit [ph] and Believer Meats to advance innovations in gut microbiome and cell-based meat respectively. And our definitive agreement with Tallgrass to pave the way for carbon capture from ADM’s Columbus, Nebraska complex furthering our decarbonization agenda. Beyond the financial highlights of the quarter, we are proud to be named one of Fortune’s Most Admired Companies for the 15th year running. And to receive our fourth consecutive Ethisphere award as one of the world’s most ethical companies. It’s an honor to be recognized externally and it continues to demonstrate that ADM’s culture and people are the engine behind our operational and financial success. As we look back on the quarter, I’d like to review it in the context of the 2023 framing we discussed in Q4’s call and provide a few brief updates. Slide 4, please. In January, we reviewed several factors that underpinned our confident outlook for 2023, and these same factors will continue to shape our performance throughout the year. The supply and demand situation remains fundamentally solid with some normalization of supply alongside shift in both the products driving demand and the origins providing supply. Supply and transportation constraints in the Black Sea region, severe drought in Argentina, the record Brazilian crop and a resurgence of demand in China post lockdown have allowed our team to take full advantage of our global footprint. Broad-based food demand remains resilient across key geographies. And we did, we are seeing solid volumes and strong operating margins across vegetable oils, flavors, sweeteners, starches and wheat milling. Demand for biodiesel and renewable green diesel is robust, driving continued strong gross margins. The strong biofuel demand and continued expectation for growth supports our investment in new crush capacity like the additional 150,000 bushels per day from our Spiritwood, North Dakota facility scheduled to come online in time for the 2023 harvest. Nutrition’s growth trajectory for the year remains on course with a double-digit increase in our human nutrition pipeline compared to this point in 2022. As noted, we expect this growth to be significantly weighted to the back half of the year, as we manage through some destocking impacts in beverage, lower margins in amino acids and the broader demand fulfillment challenges we discussed in the last quarter. It’s important to recognize that our team delivered strong Q1 results despite constantly evolving macroeconomic conditions. ADM’s ability to remain agile and apply the principles of productivity and innovation continues to position us well in a dynamic external environment. Let me take a moment to dig deeper into examples of how we are applying our productivity playbook across the organization and how decarbonization is helping us find paths for both innovation and growth. Slide 5, please. From a productivity perspective, we have continued to focus attention on automation within many of our key operations facilities. Automation not only accelerates the modernization of our manufacturing footprint, it is helping us deliver significant savings at the enterprise level. Whether we are reducing chemicals usage, delivering yield improvements or supporting operational reliability, our automation program now has a plan to scale cost improvements across our most critical operational assets over the next several years. Eight of our plans are currently underway and we expect that most of these will complete their automation implementation by year-end. And we are seeing operational and financial impacts immediately following implementation. Our most recent implementation in SEDA Rapeseed [ph] is already generating millions of dollars in efficiencies in just the first few months, confirming the double-digit returns we expect to see from these proceeds. As a whole, the impact on operating profit is significant with a target run rate of approximately $200 million per year when implementations are complete at more than 70 facilities over the next seven years. This is only one example of productivity measures we are undertaking to ensure ADM maintains agility given the levels of uncertainty in the external environment. Each of our businesses and functions is identifying opportunities to drive efficiency at the scale, while maintaining a focus on growth. Our decarbonization journey continues to move at a rapid pace and is allowing us to showcase innovation in action. Our advantaged position in alternative fuels production has prepared us for the demand cycle that continues to rise across biodiesel and renewable diesel. We continue to explore strategic options to convert ethanol into sustainable aviation fuel. The multibillion dollar addressable opportunity represented by SAF alone highlights the criticality of access to low-carbon feedstocks at a scale exponentially higher than what is available today. This is why we are prioritizing the decarbonization of our Decatur complex as the first critical step in unlocking significant value. Last year, we announced one of the world’s first, ultra-low emissions power plants would be built adjacent to our Decatur processing complex, supplying ADM with low emissions steam and electricity. This leverages our world-class facility that has been successfully sequestered in CO2 for more than a decade. ADM is a pioneering carbon capture and sequestration, and we are extending that expertise with a plan to triple the number of CCS wells in the Decatur area and sequester up to seven million metric tons of CO2 per year. This positions ADM as a clear leader in the ability to supply customers with low-carbon feedstocks and accelerate the decarbonization of their own value chain. And we think this is just the beginning. I’ll speak more about how we are defining that next phase as we wrap up. Now I would like to turn the call over to Vikram to talk about our business performance. Vikram?

Thank you, Juan. Please turn to Slide 6. The Ag Services & Oilseeds team had an outstanding start to 2023, with significantly higher year-over-year results in Q1. Ag Services results were much higher than the first quarter of 2022. In South American origination, excellent risk management and higher export demand due to the record Brazilian soybean crop drove significantly higher year-over-year results. In North America, origination results were also higher, driven by stronger soybean exports. In global trade, solid margins and efficient execution led to strong results. Crushing results were in line with the first quarter last year. In North America, the team executed well, capitalizing on historically strong soybean and softseed crush margins that were supported by robust demand for renewable fuels. In EMEA, crush margins were lower year-over-year as trade flows adjusted from the dislocations caused last year by the war in Ukraine. Additionally, there were approximately $240 million of positive timing effects during the quarter, which included both expected reversals of prior timing losses as we executed the business as well as a positive impact of about $100 million pulled forward from future periods as crush margins declined at the end of the quarter. Refined products and other results were substantially higher than the prior year period. North America biodiesel results were higher with record volumes and strong margins, supported by favorable blend economics and tight diesel stocks. In EMEA, domestic demand for food, oil and export demand for biodiesel drove strong margins. Equity earnings from Wilmar were lower versus the first quarter of 2022. Looking ahead for the second quarter, we expect RPO to continue its strong performance. Crushing is expected to be strong, but lower than the prior year based on current crush margins. We do not expect last year’s significant volatility that impacted energy and grain trade flows to reoccur in Ag Services. Slide 7, please. Carbohydrate Solutions delivered solid results in Q1, though lower than the very strong first quarter of the prior year. The Starches and Sweeteners subsegment capitalized on solid demand in the quarter. North America Starches and Sweeteners delivered strong volumes and margins. Ethanol margins, pressured by high industry stock levels, were down relative to the same quarter last year. In EMEA, the team effectively managed margins in a dynamic operating environment to deliver improved results. The global wheat milling business posted much higher margins driven by robust customer demand. BioSolutions continued on its strong growth trajectory with revenues increasing by over 20% year-over-year. Vantage Corn Processors’ results were significantly lower due to weaker ethanol margins. Looking ahead, for the second quarter, we expect resilient demand and strong margins for our Starches and Sweeteners products. Ethanol margins, while improving, are expected to remain below last year. Of note, we also recognized a $50 million benefit from a biofuel producer tax credit in the prior year quarter that will not repeat. On Slide 8, Nutrition results were significantly lower year-over-year versus the record prior year quarter. Human Nutrition results were in line with the first quarter of 2022 as the business continued to manage demand fulfillment challenges and destocking in certain categories. Flavors results were slightly lower than the prior year as strong results in EMEA were offset by lower results in North America. Specialty Ingredients results were higher year-over-year, driven by healthy margins. Health and Wellness was lower year-over-year. In Animal Nutrition, results were significantly lower compared to the same quarter last year, primarily due to much lower margins in amino acids. The Animal Nutrition business, excluding PET, is expected to face challenging demand conditions over the course of the year, and we are taking actions to mitigate the impact. These actions include targeted cost reductions, refining our go-to-market strategy with a more customer-centric approach, optimizing our production footprint, particularly in EMEA and refocusing resources on our strongest growth categories. Looking ahead for the second quarter, we expect year-over-year profit growth at Human Nutrition, while Animal Nutrition will still be lapping the higher amino acid margins from the prior year. For the full year, we expect to achieve 10% plus constant currency operating profit growth in Nutrition, led by Human Nutrition. And with continued recovery in demand fulfillment and reduced destocking effects, we remain optimistic about our Human Nutrition sales pipeline and growth opportunities. As we noted before, operating profit growth will be heavily weighted to the second half of the year. Slide 9, please. Other business results were significantly higher than the prior year quarter due to improved ADM investor services earnings on higher interest income. Captive insurance results were in line with the prior year. In Corporate, unallocated corporate costs of $248 million were higher year-over-year due primarily to higher financing and centers of excellence costs. Other corporate was unfavorable versus the prior year due to the absence of an ADM Ventures, investment revaluation gain, partially offset by higher contribution from foreign currency hedges. We still project corporate costs to be approximately $1.5 billion for the year. Net interest expense for the quarter increased $27 million year-over-year due primarily to higher short-term interest rates. The effective tax rate for the first quarter of 2023 was approximately 16%, in line with the prior year. For the full year, we still expect our effective tax rate to be between 16% and 19%. Next slide, please. In the first quarter, we had strong operating cash flows before working capital of $1.3 billion. We allocated $325 million to capital expenditures as well as returned $600 million to shareholders through share repurchases and dividends. We continue to have ample liquidity with nearly $10 billion of cash and available credit. And our adjusted net debt-to-EBITDA leverage ratio of 1.2 is well below our 2.5x threshold. Our strong balance sheet and single A credit rating provide a stable financial footing for ADM to pursue our strategic growth initiatives, while also returning capital to shareholders. In 2023, we still anticipate $1.3 billion of capital expenditures and $1 billion of opportunistic buybacks subject to other strategic uses of capital. Juan?

Thank you, Vikram. Before we wrap up today, I wanted to share some insights into how we're thinking about the remainder of 2023 and how we are positioning the company to take on the next phase of opportunities. We are confident that ADM will be able to deliver on our plans for 2023 despite some pockets of soft demand. Supply and demand shift are allowing ADM to flex our integrated value chain, in support of another strong year of results. We continue to advance partnership agreements with major players across multiple industries from regenerative agriculture to alternative proteins, to sustainable fuels, to plant-based industrial and personal care products. All of these partnerships are supporting ADM as we evolve at pace with the external environment to capture new growth opportunities. We see accelerated upsides emerging from product areas like biosolutions expected to grow at double-digit rates again this year. We have significant production capacity coming online within the year across our three businesses to support continued demand growth. And we're driving forward the broad-based decarbonization agenda in our Decatur complex, which is unlocking both near-term and long-range value for our customers across multiple industries. With a combination of solid business performance in the core business, along with the strong growth opportunities across our value chain, we expect that we will be able to deliver between $6 to $7 in earnings per share in 2023 and based on the strength of our balance sheet and cash position, we continue to pursue opportunities to deliver both near-term value to shareholders while positioning ADM for its next phase of growth. We're anticipating an in-depth review of the opportunities we see and the path ahead with the investment community in the fourth quarter. We'll share more details on this event in the coming months. Thank you for your time today, Vikram and I look forward to answering any questions you may have. With that, Bailey, please open the line for questions.

Thank you. [Operator Instructions] Our first question today comes from the line of Tom Palmer from JP Morgan. Please go ahead, Tom. Your line is now open.

Good morning and thank you for the question.

Good morning, Tom.

Wanted to ask on – maybe ask how you're thinking about earnings cadence this year, in the crushing sub-segment. So your earnings presentation notes, soybean crush margins have dipped lately in several regions of the world, but we also can see, right, the U.S. features curve points to stronger margins in the second half of the year. So maybe just, should we be looking at the second quarter coming in below the first quarter and then a potential bounce for the second half of the year or is the second quarter perhaps looking a bit better for you than industry curves might suggest?

I think you're right in your assessment that maybe second quarter will come a little bit lower and then right, crush margins will raise for the second part of the year. In the coming quarter, crush is expected to remain strong, but lower than the prior year period, as you said, based on covering crush margins as well as impact from mark-to-market that pull profits into Q1. Remember those $100 million that Vikram mentioned before. So margins will remain solid, but again, lower probably than the prior year while canola crush margins look to be improved in the upside. If you think about the whole year, crush is position for another extremely strong year in 2023, the fundamentals of the business remain strong and the structural changes are driving increased demand for both vegetable oil and meal. In 2022, remember, Tom, we have significant dislocations around the world. Likewise, 2023 will be influenced by any new dislocations which may or may not happen. Remember that while Argentina and South America is crushing hard now, Argentina will probably run out of beans given their small crop, later in the year. And at that point in time, certainly the market will have to cover for that lack of meal being exported from Argentina. We think that's where the U.S. crush margins will pick up, and that's what the curves are showing. So I think with record world soybean production, we expect soybean meal will gain in the inclusions in global – Russians and we are going to have also on our own side, we're going to have a Spiritwood coming in at the end of Q3. And also we are going to have Paraguay coming back online at that point and Ukraine also. So when you think about this operational improvements and higher refining volumes and strong refining margins we are due for a very, very strong year in ag services and oilseeds in 2023. Bailey, any other questions?

Hi. Thank you. The next question today comes from the line of Adam Samuelson from Goldman Sachs. Please go ahead. Your line is now open.

Yes, thank you. Good morning, everyone.

Good morning, Adam.

Hi. I was hoping to talk a little bit more on nutrition and maybe get a little bit more color on kind of the confidence of the recovery and profits as you see it through the year. Sounds like that's pretty heavily skewed towards the human side and I guess, I'm just trying to make sure I understand kind of how much of that is a function of the comps getting easy and flapping some of the price costs and supply chain challenges late last year. Actual market growth beneficial from some of the new capacity and the volume that you can bring to bear and then as well help us think about on the animal side, kind of the growth in pet versus the pressures you're seeing on amino acids and some of the legacy in your businesses?

Yes, Adam. So this is no different from what we signaled in the Q4 call. We had clearly indicated that the first half nutrition is going to be weak and the strength is going to come in the second half. So let's break it down. In human nutrition, as we mentioned, we've got a strong pipeline and actually customers are looking for more and more innovation, and that plays to our strengths, given our broad capabilities and our suite of ingredients. So we see a very robust pipeline, double-digit increase in pipeline and increasing win rates. So that's point number one. Point number two is that destocking effects should neutralize, we expect inventory levels to come back to regular levels. And then the third is also you relate the demand fulfillment challenges, which we experienced mainly in the back half of last year. We are working through that. We need to expect most of these issues to be resolved in the second half of this year. So a combination of a very strong pipeline, less destocking, as well as less demand fulfillment challenges gives us confidence for back half loaded growth and human nutrition. We'll still have growth in the second quarter. We expect maybe mid single-digit growth in the second quarter. So you can see the progress roughly flat in Q1, mid single-digit growth in Q2, and the back half should be significantly higher versus the back half of last year, which was challenged by demand fulfillment. Then on animal nutrition on the pet side, we still have double-digit growth in pipeline, so we see that category continue to be strong if you remember, we signal demand fulfillment challenges also in pet. We expect also that to be addressed over the course of this year, mainly in the second half, we are expecting some new capacity also to come online in the second half for pet. So we feel pretty good about pet. On the animal nutrition side, that's been challenged because we had significant contribution from amino acids in Q1, Q2, and also Q3 of last year. So we are lapping those margins, so it's going to take time and that's why it's going to be back half loaded. We also see weakness generally in feed demand as feed customers are looking at reformulation and consumers are going from higher value protein to lower value protein, but we are taking actions while volume is anticipated, be flat to slightly lower. We are working to improve margins by very, very targeted cost actions and as well as go-to-market actions that I referenced. So we feel good about the back half on animal nutrition from a turnaround perspective. So that's the reason why nutrition is shaping up to be a second half story for the reasons I cited, but we feel strong and good about the 10% plus constant currency OP growth in nutrition for 2023.

The next question today comes from the line of Ben Theurer from Barclays. Please go ahead, Ben. Your line is now open.

Perfect. Thank you very much and Vikram and Juan, congrats on the results.

Thank you, Ben.

So my questions just coming back a little bit to the ag service and oilseeds business, and I wanted to dig in a little more detail if you could share your outlook as it relates to the service piece of the equation, which obviously has been a very strong performer and we continue to see like the global disruption, but you're seeing some signs of improvements. I just want to understand how you feel about the renewal of the Russia, Ukraine grain deal but also in context with everything that's shaping up in the world, the demand versus the supply side, and where you see buckets of opportunity, maybe some market share gains and what are the risks particularly to your current outlook. Thank you.

Yes, thank you, Ben. A full question there. So listen, ag service has delivered another very, very strong quarter this year. It was strong in South America, it was strong in North America. It was strong at the global trade through all our destination marketing facilities. So when you look at the Q2, of course, in Q1 we were able to export a little bit more than maybe Brazil couldn't do it because of some of the rains and the delays. We think that in Q2 and Brazil will probably take over being the large crop that they have and the cheapest origin. Destination marketing was still holding margins there. It is an important activity around the world. You describe the risks associated. When we think about the year, the year hinges a lot in the recovery of demand in China lockdowns, the ups and downs of the crops around the world. We still have to deal with an Argentine disaster in terms of crops, and with the Brazil that has very strong crop. That is creating changes in the trade flows. So all of a sudden, we are sending beans from the U.S. to Europe to transform into biodiesel and bringing the biodiesel back, but also Brazil is sending beans to Argentina; Brazil, maybe sending a little bit of both or beans here. So there is a lot of changes in that, and that's ADM normally takes advantage of our huge footprint and normally our footprint and our ability to execute on those trade flows become an advantage. So you're going to see that in ag services around the year. I said there are two pivoting things this year. One is, again China demand coming out of lockdown. The second is the ability of Ukraine to continue to export as we have been doing during since August last year. Of course, the corridor has been renewed as ADM, we will always do our best to make sure that that continuous and export source for the Ukrainians, remember that that part of the world owns 25% of all the black rich soil in the world. So it's a very important condition – very important production area. So the corridor has been renewed, but of course, there are differences between Ukrainians view and Russian views at this point in time. And unfortunately, we have seen over the last week at the inspection of vessels being reduced to maybe a few days per week. So we remain hopeful and we remain ready to help to do this. I think that what we need to think fundamentally, the corridor is all about the availability of bringing that production. What I worry or the accessibility better said, what I worry is about the availability of the crop. This prolonged conflict is hurting the Ukrainian farmers and is hurting the Russian farmers. Both are dealing with issues, and I think that the expectation should be the conflict not resolved for production out of this area to come lower over the coming years, regardless of the export corridor. So I think, again, short-term and accessibility issue, long-term or medium-term, I worry more about availability and creating the pockets of tension again.

Thank you. The next question today comes from the line of Andrew Strelzik from BMO Capital Markets. Andrew, please go ahead. Your line is now open.

Hey, good morning. Thanks for taking the questions. My first one is on the refined products segment, which came in much, much stronger than we anticipated. And when I look at the dynamics that you called out on biodiesel and some of the other things, it seems like a lot of those are still very much in place. Is it possible that that is a more sustainable, I guess not run rate, but more achievable again in the second quarter? Are there things that have changed that would prevent that from happening?

Yes, Andrew. I think we feel pretty good or that we will execute very well in this segment and probably exceed last year's performance. We have good visibility given the book that we have. So demand continues to be there strong and we continue to execute well. We see the margins and they continue to be there with us. So there has been some comments about maybe a slower ramp up of some facilities. It's very difficult to predict, the ramp up of specific facilities, but when you look at all the data, you see all that material coming, soybean oil will continue to be a key feedstock for this. It's impossible to develop all this industry without the participation of soybean oil. Now we have a path for canola oil to get to that source. U.S. biodiesel production was up 8% in Q1. Renewable diesel production was up like 61% versus the previous year. We continue to flex our system to be able to bring biodiesel from Europe to benefit the U.S. industry. And as I said before, we expect a year that will be better than last year. And given the affordable book that we have, we have visibility into that. So we feel very confident about this, Andrew.

Thank you. The next question today comes from the line of Ben Bienvenu from Stephens. Please go ahead, Ben. Your line is now open.

Hey, thank you so much for taking the question. Good morning, everybody.

Good morning, Ben,

I want to ask about the starches and sweeteners business. You called out strong core results, good volumes and good margins. Obviously the segment was weighed on by weaker ethanol results. Could you talk a little bit about the overall backdrop that you're seeing through the balance of the year and would operating profit have been up in the first quarter, excluding the headwinds from ethanol?

Well, so on starches and sweeteners, you're right. Let's break it down. The liquid sweetener part of the portfolio, we see resilient demand and strong margins given the good contracting we had last year, and we also see increased volumes from Mexico, which helps the business. The other thing that should help over the course of the year is higher sugar prices. While, you know, we don't have a lot of spot business, but to the extent we do that should be supportive of margins and the liquid sweetener side of the portfolio. The specialty side, we are seeing strong margins, but some softness in the volumes. That's also part of sweeteners and starches. In the biosolutions, when you think about the mix of the portfolio, we are moving more and more towards the BioSolutions business. And that had very strong performance consistently over the last few years and again in Q1 with 20-plus percent growth in revenue and anticipated to continue at that clip for the course of this year. So at a high level Sweeteners and Starches, good volumes and robust margins, so it should give us confidence that we'll have a very good year again in 2023. Now with respect to ethanol, that remains the most volatile part of our portfolio, Q1 was soft. We think Q2 is going to be a little better, although lower than Q2 of last year. We had the biofuel tax credit, which we referenced, which will not repeat. But we also see some green shoots on the ethanol side. We are more constructive about the outlook of ethanol for the rest of the year. Why, for a few reasons. One is, we see ethanol stock levels coming off their peaks from earlier in Q1. Two, we continue to see good export demand. Think about what's happening even in Japan and India. So our export demand should be in the 1.2 billion, 1.4 billion gallons, which is consistent with what we saw last year. We also see higher blending rates. I think blend rates have trended slightly up. Gasoline demand continues to be strong given the strong blend economics. So in short, while we think ethanol will likely be low from an absolute margin perspective versus last year, we're still constructive generally for the rest of the year. So overall, we see a pretty strong year for Carbohydrate Solutions business.

Thank you. The next question today comes from the line of Eric Larson from Seaport Global Securities. Please go ahead. Your line is now open.

Yes. Good morning everybody, and congratulations on a good quarter.

Thank you, Eric. Good morning.

So this probably comes – I can't remember the last time I actually asked an ethanol question, but my – one of my questions today is on ethanol. So the outlook going into 2024, actually looks better because we now have – we now have a year potentially, hopefully, year-end or year-round E15 blending, which I know it's a disappointment, it's in 2024, not '20 – starting in 2023, but that could consume another 1.5 billion or 2 billion bushels of corn. So the outlook for ethanol, this year I appreciate Vikram's comments. But wouldn't you expect maybe that your demand would be better starting in 2024? And now you'll have some confidence that the retailers can put infrastructure in and put the pumps in for E15. So is that too optimistic on my part?

Yes, Eric, let me take you a little bit higher because the gyrations of ethanol up and down sometimes get confused, but we invest for the long-term here. So fundamentally if you think about the last IPCC [ph] report, it strongly argue that it's going to be difficult for humanity to stay in the 1.5 degree hitting that we should try to achieve based on the Paris agreement. If you think about that, then adaptation is what all companies and all governments are thinking about. Biofuels and bioproducts like biomaterials or biosolutions are a key part of that adaptation. So whether it's ethanol – whether it's ethanol getting in a pathway to SAF, whether it's renewable green diesel, whether it is biodiesel that's going to be a big part of the future. And ADM's strong position in that and competitive advantage will shine through. We see the same thing as we position ourselves for biosolutions or biomaterials. Again, this is just – you're going to see governments, you're going to see companies, you're going to see everybody having to work together to achieve this energy transition, if you will, and to be able to keep climate change to a level that is manageable. But you have to think biofuels will be an important part of the future. U.S. will be a key player in biofuel and ADM will be absolutely in a strong position to deliver on that. Thank you.

Thank you. The next question today comes from the line of Manav Gupta from UBS. Please go ahead, Manav. Your line is now open.

Quick question guys. Help us understand just a little bit what caused the crush margins to come in so sharply. We entered this year thinking a lot of new RD capacity will start up and soybean prices will actually move up. They've actually moved down. Was it like too much prebuying happening in 4Q? What caused this pullback in soybean oil prices? And then vegetables, so as we look at the vegetable oil prices, refined product prices are still at a significant premium to unrefined which technically benefits you a lot. So your outlook for the spread between refined and refined vegetable oils? Thank you.

Yes. So on the crush margins, as Juan noted, clearly, as you can also see in the curve right now, Q2 looks soft. And the reason is because of the expectation of a certain delay in renewable green diesel capacity. Just to be clear, we remain confident that renewable green diesel capacity is going to increase by about 1 billion gallons in 2023. The time line has just been pushed back to the second half of this year. So therefore, you see a little bit of softness in the nearby as a consequence of that. The other aspect is also related to what's happening in Argentina. In Argentina, there given – there's more beans given what's happened with the soy dollar for at least part of Q2, there's more crush capacity, if you may, that's coming online, and that's also helping reduce a little bit of the nearby crush. What's going to happen in Argentina by May or June time frame, they're going to run out of beans. So that export is not going to be available. So that should be supportive of crush margins beyond Q2. And that's why you see the slight inverse in the curve in the nearby and then recovering in the back half of the year. So that's really all that happened. It was transitory, nothing that is more than that is the delay in renewable green diesel capacity as well as what's happening in Argentina – in Argentina.

Thank you. The next question today comes from the line of Steven Haynes from Morgan Stanley. Steven, please go ahead. Your line is now open.

Hey. Thanks for taking my question. I wanted to ask on the carbon capture discussion earlier in the call and the plans to kind of triple the well capacity. Do you know kind of a time line for when that might be completed? And how much capital you're going to be putting behind that initiative?

Yes. So at the moment, we operate one well, we're going to activate the second well and then bring five new wells. Each well from a capital perspective is not a big burden. It's something about $15 million to $20 million per well depending on the cost of metals and all that. So we probably are in the high end of $20 million in the low end or something like $12 million to $15 million. The time line every time we need to have a well finished is about three months. So it's relatively quickly. The issue is you need to go through regulatory approvals and that's where we are working where government affairs team is working heavily with dedicator area and with some of the farmers in the area. So again, it could happen relatively quickly, probably within the next couple of years, if you will, not a big burden from a capital perspective, but will significantly increase our ability to pump CO2 underground. As I said, if today we have about 1 million tons, give or take per year, this will take us to 7 million, and it will be a significant boost to the decarbonization of Decatur and Decatur becoming through supplier of low-carbon intensity feedstocks for many industries.

Thank you. The next question today comes from the line of Ben Kallo from Baird. Please go ahead, Ben. Your line is now open.

Hey. Thank you, guys for taking my question. Maybe could we touch just going back to renewable diesel and crush capacity coming online? Could you just remind us about the North Dakota Facility? And if there's offtakes there or if we potentially get to a position when it comes online for the 2023 harvest where you're going to have excess crush capacity out there with others coming online and if there's further delays? And then maybe could you touch on just RVO and any kind of expectations around timing there and thoughts around if anything would be revised? Thank you guys.

Thank you, Ben. Thank you for the question. Yes, as you said, coming along with the development of the industry, ADM wants to be pressed bringing crush capacity. We're doing that, as you know in a partnership with an oil company. So they have the ability to move that product to make it into the fuel market. We have the responsibility to move, of course, the meal for which we've been working on. The plant is coming thankfully on time and on schedule to be with us by the harvest. So about the Q3, as I said in my remarks, the 150,000 tons bushels per day of crush capacity. We look at the industry. I always mentioned or I mentioned before that we look at this plant and project for two years to make sure that capacity was coming on stream prudently. We see now the industry. We see all the capacity that is coming, is all needed to be able to supply this I think the renewal diesel industry is still going to have an issue how to get feedstock for that. So that will be the issue for a while. I think that will make meal – U.S. meal very competitive in the world markets and the U.S. is planning to take share, we are part of that plan as well. So we feel comfortable about the cadence at which the plants are coming. Maybe some of our renewable diesel plants are coming a little bit slower than expected. Every project has its issues. Thankfully, ours is not delayed. But if others are, I think it's going to facilitate a little bit the digestion of all this capacity that is coming because we need to get the fit for that. I think Vikram will cover the second part of your question on RVOs.

Yes. As you know, Ben, in December the RVO proposal that came out was largely constructive for the biofuels industry and we appreciated the multiyear proposal as well as the strong support for conventional ethanol. We, however, did note in our testimony and written comments to the EPA, the opportunity for improvement in the advanced category of biomass-based diesel. And it's important to note that does not, in any way change our assessment of the strong renewable diesel capacity growth this year and beyond. And this is going to come out in June. We expect that the EPA is going to consider the feedback they've got from the industry, and we are constructive about what that outlook is going to look like. But nevertheless, we are confident about the growth of the renewable diesel capacity and the ongoing benefit and impact for crush margins going forward.

Thank you. Your final question today comes from the line of Salvator Tiano from Bank of America. Please go ahead, Salvator. Your line is now open.

Yes. Thank you very much. I want to go back to the Ag Service segment and understand a couple of things. So firstly, when I go back to the transcript last quarter, your initial expectations were for earnings to be down versus last year, if I remember correctly. And instead, they were up 35%. So, you mentioned a lot of dislocations but I just want to understand what actually differed versus your January expectations firstly for Q1? And secondly, you made the comment that Q2 earnings for Ag Services will be lower year-on-year. And I think that's pretty much what everybody expected given the situation with Ukraine last year. I just want to frame a little bit with regard to Q1 where you may $350 million profit. How do you expect Q2 Ag Services to be versus Q1? And especially given that Brazil is still selling – farmers have still sold far less soybeans than last year. Does this mean that you can see a very big boost in Q2 from these – from these trade flows? Thank you very much.

Thank you, Salvator, for the question. So as you said, Ag Services has a very, very good first quarter. This team continues to deliver and outperform sometimes on our own expectations. If you think about global trade and all the issues around the world sometimes are difficult to estimate, if you will but our team with their ability to connect, if you will origins with destinations and especially with the investments that we have made over the years on destination markets and allow us to capture more volume at higher margins than maybe in the past. They have had also a very disciplined risk management and very effective one, which we expect from them, but sometimes it's not that easy to deliver in this volatile world. Great execution in Australia, great execution on the Black Sea, origination program and again a solid margins at destination. South America were probably another bright point for us. They capture higher volumes and margins. We were very well positioned on a crop that was very large and on a farmer that was undersold. So we position ourselves properly, and we get the rewards from that. And North America benefited from a strong risk management and a strong bean export programs. Again, Brazil was a little bit delay with some of the rains and all that in terms of their harvest. So the U.S. extended the window a little bit more. Now Brazil, we think – if you think about second quarter and what we're predicting it to be a little bit lower is we're not going to have – if you think about second quarter last year, the same volatility that we have because of Ukraine at that point in time. And the world was starting and the world was a little bit stunned on what we do now. Now we know what do we do? We have channels to export; the product is flowing for the most part. As I warned in my previous question, I think we're more worried about the productivity of the farmers of Ukraine and Russia eventually later on. But I think for this year, we have the ability to export that. We expect robust North American corn exports until Brazil second con crop is available. And then I think that North America will lap until Brazil run out of core. So we have lower North American soy exports expected in the second quarter because Brazil will take that place. So it's a little bit the shift if you will. And the decrease of that shift to be honest, Salvator sometimes are marked by the logistics issues. Brazil has a large corn crop and soybean crop, and it needs to be able to move that to the ports and being able to ship it. And then you have the Ukraine issue we discussed before. So those are the puts and takes. In general, as I said, the unit is performing very well, performed exceptionally well in the first quarter. We expect them to perform stronger in the second quarter, but maybe not as strong as second quarter last year. Thank you.

Thank you. This concludes today's question-and-answer session. I'd like to pass the conference over to Megan Britt for closing remarks.

Thank you for joining us today. Please feel free to follow-up with me if you have any additional 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.