Bunge Global S.A. (BG) Q2 2013 Earnings Report, Transcript and Summary

Welcome to the Q2 2013 Bunge Earnings Conference Call. My name is Dawn, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Mark Haden. Mr. Haden, you may begin.

Great. Thank you, Dawn, and thank you, everyone, for joining us this morning. Before we get started, I want to inform you that we have prepared a slide presentation to accompany our discussion. It can be found in the Investors section of our website at bunge.com under Investor Presentations. Reconciliations of non-GAAP measures disclosed verbally on this conference call to the most directly comparable GAAP financial measure are posted on our website in the Investors section. I'd like to direct you to Slide 2, and remind you that today's presentation includes forward-looking statements that reflect Bunge's current views with respect to future events, financial performance and industry conditions. These forward-looking statements are subject to various risks and uncertainties. Bunge 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 encourages you to review these factors. Participating on the call this morning are Soren Schroder, Chief Executive Officer; and Drew Burke, Chief Financial Officer. I'll now turn the call over to Soren.

Thank you, Mark, and good morning to everybody. The first half of the year came in generally as we expected, and we're anticipating a strong second half. In the second quarter, our Brazilian agribusiness operations generated strong results, executing record volumes under challenging logistic conditions. We navigated the choppy agri markets well, but faced some challenging structural conditions in North America, Europe and Argentina due to the continued effects of last year's poor oilseed and green crops. In sugar & bioenergy, we can clearly see the positive impacts of our improvement efforts in the industrial operations, but also in global risk and trade flow management. And food & ingredients delivered a record first half of the year due to improved volumes, margins, service levels and close work with customers on procurement strategies. Group demand and big Northern Hemisphere crops should drive robust commercial activity, asset utilization and growth and global trade in agribusiness during the remainder of the year. Sugar & bioenergy will enter the peak milling season. And in food & ingredients, we expect continued strong performance in both milling and edible oils as we launch new consumer and B2B oil products and continue to improve the total supply chain efficiency. We're optimistic about the long term as well. Our markets, while competitive, are growing steadily. Bunge has a solid foundation. We are leader in key markets. We have an excellent team and a strong financial position. We're excited about the future, but it's also clear that success has to be defined by stronger financial performance and consistent value creation for shareholders. Growth has to be balanced with compelling returns. Our improvement plan for sugar & bioenergy is an essential part of elevating overall returns to above our cost of capital, but we can do more in other segments as well. We're enhancing our global performance management system, which will facilitate a more granular management of business unit performance, then intensify our continuous improvement on operational excellence efforts. We're also adjusting our capital management investment approach. We're reducing our 2013 CapEx by $200 million and commencing a review of 2014 plans. We're prioritizing projects with short paybacks, many of them aimed at improving productivity and we're postponing some growth projects which will allow us to improve capacity utilization of our existing asset base. We're reviewing 2014 in the same spirit. We will, however, still look to fill important gaps in our global network for opportunities, strategic and returns compelling. Again, our intent is to balance growth opportunities with a requirement of improving our returns. We look forward to sharing more details with you in the coming months. Now I'll turn the call over to Drew, who will provide greater detail in the quarter and outlook.

Thank you, Soren. Let's turn to Page 3 in the earnings highlights. Total segment EBIT in the quarter was $239 million versus $404 million in the prior year. The prior year included certain gains of $121 million related to the sale of our interest in the Solae joint venture and to the acquisition of a controlling interest in a Mexican wheat mill where we previously held the minority interest. On a year-to-date basis, our adjusted EBITDA, $499 million, is 3% higher than the prior year, $483 million. The improved result was driven by improvements in our sugar & bioenergy and our food & ingredients businesses. Agribusiness year-to-date performance is below prior year, mainly due to the impact of past weather events on our businesses in North America, Europe and Argentina. Our Brazilian business has performed well. In the quarter, agribusiness adjusted EBIT was $170 million versus $301 million in the prior year. Brazil was the primary driver of results in the quarter. European results were negatively impacted by tight sunflower and rape seed supplies and a follow-on impact of more grain crops in the Black Sea. Similarly, North America was negatively impacted by tight grain and oilseed crops. Our sugar business recorded a loss of $3 million in the second quarter compared to a loss of $28 million in the prior year. This result exceeded our expectations as all 3 businesses performed well. As a reminder, the second quarter was seasonally weak for our milling business, and it marks the beginning of the sugarcane harvest in ATR levels or at their lowest. We are beginning to see the results of our productivity improvement and planting programs. There is sufficient cane in the fields for us to produce at capacity. Our crush volumes were 25% above prior year, ATR levels are trending towards historical norms and our production costs are lower. These lower production costs combined with higher ethanol prices more than offset the impact of lower sugar prices. Our merchandising business performed well due to strong export volumes and margins, combined with strong rich management. Biofuel results were higher due to improved margins in our U.S. joint venture. Food & ingredients adjusted EBIT was $63 million versus $10 million in the weak prior-year quarter, as both edible oils and milling reported improved results. In edible oils, North America, Brazil and India performed well, and Europe showed improvements as margins were better despite strong competition and higher raw material prices in certain markets. In milling, our Brazil wheat milling and North American corn milling businesses performed well. Results in Mexico wheat milling were higher, reflecting our increased ownership. Our net income per share from continuing operations diluted and adjusted was $0.74 versus $1.15 in the prior year. In calculating this quarter's net income available to common shareholders, $17 million or approximately $0.12 a share is allocated to the holders of a redeemable noncontrolling interest. This allocation is primarily related to an Eastern European oilseeds joint venture, where our partner has a put option with a fixed minimum price. The joint venture occurred a loss in the quarter primarily due to the poor oilseed crop last year, and our partner share of this loss is assigned to our common holders. The business is expected to turn profitable with the new harvest later this year. On a year-to-date basis, EPS adjusted and diluted was $1.89 versus $1.97 in the prior year. Let's turn to Page 4 in the cash flow. Our cash flow used for operating activities was $513 million. It is comprised of funds from operations of $664 million which primarily represents net income of $270 million plus depreciation, depletion and amortization of $270 million. We had an outflow in changes in assets and liabilities of $1.2 billion, primarily due to a seasonal increase in accounts receivable and prepayments to farmers. The seasonal increase in working capital is much lower than prior year due to a significantly lower inventory build. Our liquidity situation remained strong. At June 30, we had $2.8 billion of credit available under committed lines. Let's turn to Page 5 in the outlook. We expect a strong second half. In agribusiness, we expect demand to be strong in North American and European supplies to be replenished by large harvest. Customer inventories are lean, following a period of high prices, tight supplies in the Northern Hemisphere and logistical delays in South America. At the same time, meat economics are good, increasing demand for both grains and oilseeds. A combination of refilling pipelines and good underlying demand should result an increasing global trade volumes and higher oilseed processing utilization, especially in the Northern Hemisphere as the new crop supplies become available. In sugar & bioenergy, we are entering the seasonally stronger second half of the year. Our cane planting and productivity programs are yielding positive results. We have adequate cane to run our plants at full capacity, and both cane yields and ATR are improving, resulting in lower unit production costs. Ethanol pricing has improved, but has been offset by weaker sugar prices. We continue to expect to be solidly profitable this year. Our foods business should continue to perform well, and we expect increased profitability in the second half. We will continue to focus on increasing our operational efficiency and customer service levels. The upcoming harvest should be supported for margins in Europe. In fertilizer, we continue to expect to close on the sale of our Brazilian business to Yara in the third quarter. As Soren indicated, we are reducing our 2013 capital expenditures by $200 million to $1 million. In summary, we expect a strong finish to the year. Agribusiness margins in the Northern Hemisphere should widen with the arrival of large crops, sugar & bioenergy should continue to improve and begin to demonstrate its earning potentials and food & ingredients should continue its upward trend in earnings. I will now turn the call back to the operator, and we will take your questions.

[Operator Instructions] Our first question comes from Vincent Andrews from Morgan Stanley.

Two quick questions. First on the CapEx budget, can you speak specifically to what you are not going to do this year that you're otherwise going to do? And then secondly, I guess maybe the same question for '14, what exactly are you looking at?

Okay. I don't want to get into the specific project details, but it is a combination of postponing certain growth projects so that we time that better with what we believe will be a nice growth in demand and allows us to operate our existing capacities and higher rates. And then it is a reprioritization of what I'd say projects that have shorter paybacks and are more related to productivity. And that will -- that is how we got to the reduction this year. Next year, we'll look at it in the same light. We'll come back with more detail. We haven't completed the analysis yet, but it will be in the same spirit.

Is there a target level of growth CapEx you're looking to get to?

I will say that what we are doing in general is reducing growth CapEx for the time being and focusing more on things that are related to direct productivity improvements. But I wouldn't, at this point, be in a position to give you a target on what the number is.

Okay. And then last question is just can you talk a little bit about how the mixes of the second half should play out in terms of earnings contribution? I'm assuming 3Q will be smaller than 4Q potentially because you won't necessarily have the North American harvest until late in 3Q, early 4Q?

Yes, I think it'll be loaded towards Q4. That is correct from a tendency point of view. But I think all segments should have very strong Q3s and Q4s, agribusiness for sure. Sugar were entering the peak months, Q3, and the beginning of Q4 will be the strongest month for sugar. And seasonally -- and I think also because we feel so comfortable about the improvement plans we have in our food & ingredients business, should have a very strong finish to the year. So it's really across all 3 segments but heavily weighted towards -- are weighted towards Q4.

Our next question comes from Ann Duignan from JPMorgan. Ann P. Duignan - JP Morgan Chase & Co, Research Division: I just thought on the 2 businesses, sugarcane, ethanol, are there opportunities in sugarcane, ethanol for exports to the U.S. as we go forward?

Yes, there will be a continued flow to the U.S. for Brazilian ethanol, partly to meet the advanced fuel mandate in the U.S. And the volumes remain to be determined. They are largely dependent upon the amount of biodiesel that's produced in the U.S., which is at a strong clip at the moment. So it will be a mix between those 2 that fill the majority of that advanced fuel mandate in the U.S. this year and next year. So the flow will continue. Ann P. Duignan - JP Morgan Chase & Co, Research Division: Okay. And then on the agribusiness margins, can you give us any help breaking out the contribution to the margins from Brazil versus the U.S. or North America?

Well, from a tendency perspective, I say we have very good margins in Brazil. So very strong quarter, good volume, but also very good margins. And in Northern Hemisphere, particularly in soft seed crush in Europe, margins were very poor. That's the only way to put it, sunseed in particular, but also rape seed. In the U.S., margins in oilseed crushing were on paper, probably better than you might have thought they would be. But capacity utilization was very low, so the fixed cost per ton were very high. And the grain handling volumes were just bad because of last year's drought. So Brazil outperformed, I would say, but Europe and North America wasn't able to compensate. Ann P. Duignan - JP Morgan Chase & Co, Research Division: Okay. And when you say very good margins in Brazil, any chance you can define very good?

Well, better than last year. No, I can't put a number on it. But there were solidly good margins with good returns, good [indiscernible] and then obviously, very good execution, which is a big piece of the equation in Brazil the last 2 quarters. We locked in good margins and we executed them. That's really the -- I think that's a good story in Q3 in Brazil. There were plenty of opportunities to lose a good margin in logistical snags, and we didn't, and we feel good about the next quarter as well. So good margins, and we kept them.

Our next question comes from Christine McCracken from Cleveland Research.

Just a follow-up on Ann's question. If you look at the Brazilian margins, is there any -- how are you competing for beans with the demand around the world so strong for soybeans and exports up so much? How are your plans operating there on the crush side?

You mean within Brazil?

Yes.

All our plants were operating, and the crush margins have generally been good in the last quarter. Export product [ph] beans, of course, is also been very strong. Brazil has exported an all-time record amount of beans over the last 4 months. And in the case of Bunge, we made sure that all the beans that we had for export were directed to our own plants across the world, whether it's in China or Europe. So because the crop was so good and generally speaking, the farmer was a more willing seller as we got into the end of the quarter, we've been able to accommodate both our crush plants in Brazil who put margins and also feed our overseas in-house demand.

And as you look around the world, at global demand for beans versus processed products, has there been any notable changes? You talked about how the pipeline had been drawn down obviously. But curious how you're looking at demand, specifically for beans but also for meal, as you look at your exports.

Well, I think you can say that pipelines in both meal and beans have been extraordinarily tight, very, very tight over the last several months. Oil has been a bit of a different story. But for protein, for soybean meal and soybeans pipelines at destinations have been very squeaky, very tight. Demand for both has -- is still growing and will continue to accelerate in growth the last half of the year as we now get into a different price -- we expect to get into a different price level. But I'll say the bean tightness and the meal tightness at destination is probably about similar. In China, early on in the quarter, margins were good and soybean supplies very, very tight. That is now changing a little bit. Arrivals into China with beans out of Brazil, we had delays early on, but soybeans are now arriving in China at a steady clip. So that pipeline is being refilled. But there are still many parts of destinations, whether it's in Europe or Southeast Asia, where the meal supply pipeline is very, very tight. And will probably remain that for another -- that way for another few months.

Our next question comes from Michael Cox from Piper Jaffray.

With the larger North America crop coming and now these port issues basically resolved in Brazil, can you talk a little bit about your volume expectations for the back half of the year in agribusiness? Can you frame it up for us, if you could?

Yes. The overall agribusiness volume should be up the last half of the year. Northern Hemisphere, U.S. in particular, not Bunge, but in general, should have a -- should experience a significant uptick in exports compared to last year for sure. We will have a very, very strong bean export program. And corn, although it will compete with both Brazilian and Ukrainian corn should have a nice increase compared to last year as well. Wheat exports will be solid, led by both Chinese imports and also Brazilian imports. So overall, we expect volumes to improve the last half of the year, and a lot of it shifting towards North America.

Okay, that's helpful. And then in terms of profitability in sugar & bioenergy, you commented just a couple of times about being solidly profitable there. And I was just wondering if you could comment or frame up your expectations relative to the $8 to $10 per ton level that you've talked about considering where sugar prices are today.

When we look at the $8 to $10, we've talked about achieving that in the next year. So for 2014, when we look at the different variables that go into that equation, we are where we thought would be as far as our productivity and our production cost, and we continue to make significant improvements along those lines. If we look at where the pricing levels are today, sugar is weak and below where we thought it would be. We've gotten some of that back because of the weakness in the real. So the real prices sugar versus our cost is a little bit more in line. So the impact isn't as big on the headline reduction in sugar as you would might expect. You put all that together, and I think we'd probably need a price increase of about 10% to 15% range to get us to a point we're at $8 to $10 next year.

Our next question comes from Ken Zaslow from BMO.

So Soren, you're going to have, call it, an extra $200 million of CapEx -- reduction in CapEx, you're going to have $750 million and then you're probably to going have a downward curve in soybeans, so your working capital means should be a lot less. Can you talk about what your priorities to cash are? How they will change? And where your shareholders stand in the priority in the pecking order here?

Okay. You outlined it very well. We will between the Yara proceeds, the CapEx reduction and also the reduction in working capital that will come either as prices decline or our cash cycle improves or both have some flexibility as we get into the last half of the year and as this deal closes. Our priority is to keep the balance sheet in good order, maintain our BBB credit rating. That's number one. But it's clear that we have room beyond that to consider whether it's acquisitions or whether it's returning money to shareholders. All that is within the realms of possibility, we have the flexibility to approach both.

So what do you plan on doing with your flexibility, I guess, is the question. Is [indiscernible] right?

I think it'll be -- yes, that's right. Let's close the Yara deal first. That's something -- that's the first step. And as we gain confidence about the working capital levels and we see the reduction in CapEx over the next couple of months, and will become more concrete about how we pick the next steps. It's too early to call it now.

Okay. You talked about Argentina, I mean Brazil starting to release soybeans. Can you talk about the Argentine environment? Where do you guys stay on that? It's still a pretty big part of the South American presence.

It is absolutely. I'd say, Argentina has -- it's a complicated market environment. On the grain side, the poor wheat crop and the cancellation of wheat export licenses earlier on this year was not an easy thing for the market to digest. But we've had a good export program in corn. And while farmer retention has been high on the bean side and most likely will continue to be, we've had decent crush margins but with low volumes. So it's a challenging environment. Margins are reasonable, but volumes are lower than we would like.

And my last question is just a clarification. You said that the food will be stronger in the second half. Is that relative to year-ago levels or the first half? I just didn't understand that if you [indiscernible]

That's relative to the first half.

Yes, I think it's actually both, Ken.

It probably is both, I think. But it is relative to the first, and yes, I believe if you go back a little bit with the numbers, I don’t have them in front of me, but I'm sure it is relative to both.

Our next question comes from David Driscoll from Citi Research.

A couple of questions. The first one is maybe just -- in apologies, I'm not sure if you'd say this. I'm joining a little late. Your call overlapped with another one of our covered companies. But wanted just to ask a little bit about kind of the quarterly performance. You wrote in the press releases that this was kind of in line with your expectations, but yet it's down quite considerably year-on-year from second quarter 2012. So I suppose -- maybe it's my mistake for not understanding you guys on the last call, but it just was anything but clear that you would see this level of decline from the year-ago period. And then Soren, maybe kind of a corollary to that particular issue, I suppose I just want to know philosophically, when the Northern Hemisphere has problems and given the absolute massive size that you have in South America, why does it seem that it just doesn't work that, that business down there would see outsized profitability to more than offset difficulties in the Northern Hemisphere?

Okay. But maybe I'll take the last one first. It's really a matter of balance. I think what we had this past year really was a problem, not only in the U.S., but also in Europe. So you've got our European crops business, particularly the soft seed business, but also the grain handling, as well as North America running into a very well-advertised supply shortage. I mean, we've talked about that since last November, that at some point in time this spring, both of those regions would face structural problems. And combined, they're large. Brazil was -- Brazil, although it performed very, very well, simply wasn't able to compensate for that. That's the short story. I would also say, David, that we navigated markets well, we manage risk very well this past quarter, but it's a complicated market environment. So it was perhaps a more conservative approach than we would have taken last year at same time where the impacts of the evolving U.S. drought were more clear, and you can see how choppy the markets are. So our approach has been a bit more conservative perhaps. But the balance issue really is what you're referring to. And the combination of Europe, as well as North America, the structural negative margins, particularly in crush, just couldn't be compensated by what was a really good quarter in Brazil.

David, I also might add, we didn't have the normal balance coming out of South America because it was a complicated quarter in Argentina. You had slow farmer selling so you had lower volumes, you had the wheat crop down there. It wasn't very good, so you didn't have the normal wheat coming out of Argentina. So it's not as if all South America were sitting on all cylinders. While Brazil was, we didn't get the pickup we'd normally would get [indiscernible] in that quarter.

Yes, that's a fair point.

Can I -- and from my point of view, I think that probably is the key piece of it, and I would only say that from the outside, of course, as an analyst following the company since it IPO-ed, it is difficult. When you -- if you really do have an expectation that it'll be down materially in -- within a 3-month interval, I would just simply strongly encourage you to just be as clear as you can about these things. I understand your desire to not give guidance, but some very strong directional indications, especially on short-term stuff, is appreciated.

Okay, David. All right.

Our next question comes from Tim Tiberio from Miller Tabak. Tim J. Tiberio - Miller Tabak + Co., LLC, Research Division: Drew, just a quick question, following up on your comment that we would need to see another 10% to 15% increase in prices that start getting to that $8 to $10 EBIT ton level, it seems like you've been talking about the need for this for several quarters. What do you think exactly does need to occur, either in Brazil or in the export markets, for us to finally start getting that 10% to 15% increase? We've seen the blend mandate go from 20% to 25%. People are talking about 600 million-plus gallons of exports out of Brazil. Just trying to get a sense of what type of sensitivity you're looking at in projecting out a 10% to 15% increase?

Okay. I think we -- obviously, to you're talking about sugar and ethanol separately. So if we take a look at the sugar balance sheets or supply and demand, we refer to them as balance sheets here. If we take a look at the sugar supply and demand in pricing history, pricing hit a very high point in sugar, I don't know, maybe a year ago. My timing might be off a little bit. But for a couple of years prior to that, and that brought a lot of marginal production around the world into the market as a lot of nontraditional origins increased their production. They typically work on a shorter cycle than you have in Brazil as far the planting cycle, so I would expect that a lower sugar price, you would see some of the supply come down. The second factor is we do expect ethanol demand to continue to rise in Brazil, and as that rises, you will see product being reallocated or production being reallocated from sugar to ethanol, so it would be supportive of sugar prices. So we think sugar is just towards a low point in the cycle and will naturally come up than we think that surplus in sugar will naturally be used up between those 2 factors. So we think there is a possibility that sugar prices will improve over the near to mid term, but markets are always hard to call or answering what the situations are that would make it happen. On the ethanol side, we have seen movement by the Brazilian government in the gasoline price. We've seen policies that are friendly towards ethanol or in terms of taxation. But even when all of that is factored in, there is still a problem for the country of having a fuel deficit, they are fairly large importer of gasoline and they are incurring losses on those imports. So the situation still is not sustainable, and we expect that sometime the government will have to address that. And if they would increase the gasoline price, it would have a follow-on impact on the ethanol price. So those are the factors that would lead you to believe that we're in a situation where prices are more likely headed up and down. But as always, it's hard to call exactly when they will flow through to the markets. But those will be the reasons we would expect that it's reasonable to assume in the future that price movement will be upward. Tim J. Tiberio - Miller Tabak + Co., LLC, Research Division: Okay. And just shifting gears. Soren, I don't want to jump the guns since it's your first quarter, but we have seen some of your competitors being maybe more aggressive in outlining cost savings and CapEx improvement. Obviously, you've highlighted some of the reduction for growth CapEx. But just framing this up, should we start to start thinking about some of these initiatives that maybe you'll start looking at over the next coming months? And what type of buckets, as you're reviewing the business, should we expect that you'll be focused on?

Yes, that's a fair point. The headline is absolutely focused on returns. And so the CapEx is part of that, SG&A is part of that. The whole performance management approach that we are now implementing at Bunge is aimed at improving returns. And within that approach, there are several buckets. There's an industrial bucket, there's an SG&A bucket. In fact, you can see some of those improvements already. They will accelerate throughout the year. There is a financial bucket and there's a commercial bucket. And as we become a little bit more advanced in our implementation, we can perhaps start talking about some of those elements more specifically. But our performance management program really covers all of those 4 buckets in quite some detail. And it focuses in on the business unit itself, which is the building block of Bunge's performance. It looks at performance gaps to best in class, whether it is within Bunge or whether it is externally. And it establishes targets based on those performance gaps and actions to get there, all aimed at improving returns. So as we roll this out in more detail we've just started, I think we'll be able to talk about it in some more detail in upcoming quarters. Tim J. Tiberio - Miller Tabak + Co., LLC, Research Division: Great. We look forward to it.

Our next question comes from Ryan Oksenhendler from Bank of America.

I guess just a follow-up on the CapEx. Can you talk about how that impacts your ability to grow over the longer term in terms of volumes and EPS targets? And even more specifically as it relates to I think you guys have point to target of doubling share capacity, how long should we expect CapEx to remain at a lower level?

Well, the discipline around CapEx will remain. I think the impact of what we've just outlined is going to be very minimal, really believe that we'll be able to bring our existing asset base and system up at a higher level of utilization. And I think that's, generally speaking, an industry issue. There is no behind the [ph] capacity that needs to be consumed over the next couple of years as the markets grow. And then we will schedule growth projects in an appropriate fashion so that we can maintain our market share and our presence in the important parts of the world beyond that. So I don't think that our reduction or rescheduling of some of these CapEx growth projects will have negative impact on our results short term. We'll simply utilize what we have better. But don't misunderstand this either. We are still looking and we are still able to pursue important strategic growth opportunities when they come about. We haven't stopped that. Our industry is growing, Bunge is still growing. But for the next while, we really believe that Bunge and the industry, maybe at large, has an opportunity to use better what already exists.

And I guess does that mean that maybe there are some opportunities for acquisitions given the overcapacity in certain areas and where Bunge be interested in?

Yes, I think that's a good point. I think we would be more interested in pursuing acquisitions, especially in markets that have overcapacity than adding capacity, that's clear. So we are looking at acquisitions as well.

Okay. And then, I guess, on the last quarterly call, you mentioned that you expected the business to earn above your cost of capital this year. Do you still feel like that is consistent?

Yes. I mean, we've said that we will get to cost of capital this year, and we believe that's still the case.

Our next question comes from Robert Moskow from Crédit Suisse. Robert Moskow - Crédit Suisse AG, Research Division: Soren, I wanted to ask you like over the past several years, commodity prices have gone up quite a lot just -- and I think they're higher to stay. I had always thought that Bunge would earn higher returns in an environment like that, because I thought that your company and other processor logistics providers would get a higher return for taking on the risk of taking on all that inventory, and -- both from your customers and your suppliers. And it hasn't paid -- it hasn't played off that way. And I'm wondering if -- what your point of view is as too why that is. Is it the farmers who have maybe gotten more negotiating power in that interaction? I doubt it would be your customers. So do you have a view on that?

I think the ability of farmers in key markets to hold crops is part of that, no doubt. But I think the overriding issue is that capacity utilization in most important markets has actually gone down. There's been more capacity addition than there's been demand growth in this period of high prices. So that's one part. And in reality, margins just haven't expanded in a proportional way to make up for the increase use in working capital. So it comes down to a capacity issue at the end of the day, and I think that is really the biggest challenge.

I will now turn the call back to Mark Haden for closing comments.

Great. Thank you, Dawn, and thank you, everyone, for joining us this morning.