Q1 2024 Summary
Published Jan 10, 2025, 5:10 PM UTC- ADM has exceeded its 2023 goal of 2 million acres in regenerative agriculture programs and increased its 2025 goal from 4 million to 5 million acres, highlighting the company's leadership in sustainability and strong relationships with farmers.
- Recent flavor acquisitions are performing better than initial estimates, contributing positively to the Nutrition segment's growth; additionally, the biotics business increased operating profit by 100% in the first quarter.
- ADM anticipates increased vegetable oil demand from renewable diesel, expecting an additional 1 billion gallons of capacity this year, which should bolster crush margins and overall performance.
- Underperformance in Nutrition Segment: ADM's Nutrition segment reported an operating profit of $84 million, lower than the prior year, with recent acquisitions not yet contributing to operating profit due to start-up costs.
- Regulatory Pressures Increasing Operational Costs: ADM is investing heavily in decarbonization strategies, including increasing carbon capture and sequestration from 2 wells to 7 wells, and building pipelines to their carbon capture units, partly to comply with EU regulations, which could increase operational costs.
- Potential Overestimation of Soymeal Demand: Analysts are skeptical about ADM's expectations for improved soymeal demand later in the year, noting that forecasts do not project a significant uptick in poultry production, which could negatively impact the company's performance if demand does not materialize.
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Crush Margins Outlook
Q: How are crops and farmer selling impacting crush margins?
A: Crush margins improved in Brazil due to better farmer selling and the devaluation of the real, while Argentina faces uncertainty from strikes. ADM operated in Q1 at the higher end of its margin range but expects to move to the lower end in Q2 and Q3, recovering in Q4 with the U.S. crop. Increased soybean oil demand from new renewable green diesel plants adding 0.5 million tons and Brazil's biodiesel mandate increasing by another 0.5 million tons will support margins later in the year. -
Nutrition Business Strategy
Q: What are your plans for the Nutrition business going forward?
A: ADM sees sequential improvement by removing one-offs and focusing on fewer platforms and customers. Short-term headwinds in revenue due to raw material corrections are expected, but there's strong long-term belief in plant-based proteins. Flavor demand is strong, and biotics operating profit increased by 100% in Q1. Animal Nutrition offers potential, with self-help efforts showing in the P&L, though some refinement of the portfolio may occur. The business aims to be more specialty-focused and higher-margin, which bodes well for growth into 2025. -
Soymeal Demand & Cost Savings
Q: Can you clarify the expected improvement in soymeal demand and cost savings?
A: Despite current forecasts, ADM expects growth in poultry sectors globally, indicating increased soymeal demand later in the year. Pricing effects and changing trade flows support this outlook, with 1 billion gallons more renewable diesel capacity in the U.S. and 500,000 tons more soybean oil demand from Brazil's biodiesel mandate being key factors for crush margins. On cost savings, over 1,200 initiatives are underway in process optimization, with about one-third of the $500 million target already in sight for 2024. -
Tax Credit Transition Impact
Q: How will the blenders tax credit changing to producers tax credit affect soy oil demand?
A: The $1 blenders tax credit will expire at the end of 2024, transitioning to a production tax credit administered by the Treasury. Inclusion of GREET CI modeling is favored, but the EPA's delayed ruling creates uncertainty. Without guidance on crop-based biofuels generating credits, price discovery becomes difficult, affecting 2025 volumes. ADM is advocating for clarity to support industry investments. -
Biodiesel Margins & Used Cooking Oil
Q: What is pressuring biodiesel margins and how are regions affected?
A: North American refining margins are lower due to imports of used cooking oil impacting biodiesel margins. In contrast, EMEA results were higher, capitalizing on strong biodiesel margins. South America saw stronger biodiesel and packaged margins, supported by Brazil increasing its biodiesel mandate to B14, adding 0.5 million tons per year of soybean oil demand. Similar dynamics are expected in Q2. -
Ethanol Margins & Exports
Q: Why are ethanol margins diverging, and what's the export outlook?
A: VCP benefited from stronger export demand for sustainably certified ethanol, which commands a premium. Ethanol is a cheap oxygenate, with exports expected to exceed 1.5 billion gallons. Domestic blending demand is good, and inventories are expected to balance as plants enter maintenance and driving miles increase over summer, improving margins. -
Decatur East Plant Restart
Q: What is the timeline for the Decatur East plant restart?
A: Significant activity is ongoing, with expectations for the plant to be operational in Q4. Headwinds in the Nutrition segment, particularly Specialty Ingredients, due to this downtime will persist through the year. -
Renewable Diesel Feedstocks
Q: How are renewable diesel producers adjusting feedstock usage?
A: With flat palm oil production, the U.S. renewable diesel industry relies on multiple feedstocks, including soybean oil. While used cooking oil imports have increased, they won't suffice to meet the additional 1 billion gallons of capacity this year. ADM expects soybean oil's share to recover from 30% to 40%. -
Green Bison JV Contribution
Q: What is Green Bison’s contribution to volumes and profits?
A: ADM's crush volumes increased by 9% in Q1, partly due to Spiritwood (Green Bison) coming online, as well as improvements elsewhere. The Green Bison JV will contribute to profit in 2024, ramping up to full capacity soon. -
Carbohydrate Solutions Outlook
Q: Can you discuss volume recovery in Starches and Sweeteners?
A: ADM sees strong demand and good margins across all segments, benefiting from lower chemical and energy prices and better operations. Sweeteners and Starches contracts are satisfactory, with strong exports to Mexico and other countries. Q2 is expected to be better than last year, though ethanol remains uncertain. -
Sustainability Initiatives
Q: What's driving the doubling of your regen acreage?
A: Both farmer interest and customer demand for sustainability practices are driving the increase. ADM continues to sign contracts, expanding the program to Europe and Latin America. The program is seen as a leading initiative globally.