Operator: 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.
Andrew Strelzik: 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?
Juan Luciano: 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.
Operator: Thank you. The next question today comes from the line of Ben Bienvenu from Stephens. Please go ahead, Ben. Your line is now open.
Ben Bienvenu: Hey, thank you so much for taking the question. Good morning, everybody.
Juan Luciano: Good morning, Ben,
Ben Bienvenu: 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?
Vikram Luthar: 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.
Operator: 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.
Eric Larson: Yes. Good morning everybody, and congratulations on a good quarter.
Juan Luciano: Thank you, Eric. Good morning.
Eric Larson: 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?
Juan Luciano: 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 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.
Operator: Thank you. The next question today comes from the line of Manav Gupta from UBS. Please go ahead, Manav. Your line is now open.
Manav Gupta: 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.
Vikram Luthar: 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.
Operator: 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.
Steven Haynes: 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?
Juan Luciano: 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.
Operator: Thank you. The next question today comes from the line of Ben Kallo from Baird. Please go ahead, Ben. Your line is now open.
Ben Kallo: 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.
Juan Luciano: 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.
Vikram Luthar: 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.
Operator: 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.
