Good morning. Welcome to the ADM First Quarter 2021 Earnings Conference Call. All lines have been placed on a listen only mode to prevent background noise. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's call, Victoria de la Huerga, Vice President, Investor Relations for ADM.
Ms. De la Huerga, you may begin.
Thank you, Chris. Good morning, and welcome to ADM's Q1 earnings webcast. Starting tomorrow, Please turn to Slide 2, the company's Safe Harbor statement, which says that some of our comments and materials constitute forward Looking statements that reflect management's current views and estimates of future economic circumstances, 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 should differ materially from those in this presentation, and you should carefully review the assumptions and factors in our SEC report.
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, We'll provide an overview of the quarter and highlight some of our accomplishments. Our Chief Financial Officer, Ray Young, will review the drivers of our performance as well as corporate results and financial highlights. Then Juan will make some final comments, after which they will take your questions. Please turn to Slide 3.
I will now turn the call over to Juan.
Thank you, Victoria. This morning, I'm pleased to share with you results that demonstrate an outstanding start to 2021, building on our momentum from a record 2020. We reported 1st quarter adjusted earnings per share of $1.39 more than double the year ago period. Adjusted segment operating profit was $1,200,000,000 86% higher than the Q1 of 2020 and our 6th consecutive quarter of year over year adjusted OP growth. Our trailing 4 quarter average adjusted ROIC It was 9%, 3.75 basis points higher than our 2021 annual WACC And significantly higher than the 7.6% in the year ago period.
And our trailing 4th quarter adjusted EBITDA I'm proud of our team, and they continue to deliver sustained strong growth, powered by their continued advancement First, we are encouraged by many of the demand indicators we are seeing. From a geographic perspective, Driven by its economic recovery. In the U. S, meat production is strong as exports and retail sales remain robust And restaurant dining expands. Vaccine rollout has been slower in EMEA, but is accelerating now.
So we're optimistic that demand will recover there as the year progresses. Of course, some countries like Brazil and India Are still in the midst of the pandemic and demand there may be slower to come back. From a product perspective, Expectation for progressive recovery in global foodservice will support demand for sweeteners, flour and other ingredients in 2021. And we are seeing a strong demand for beverages, alternative proteins and nutritional supplements, including expected sales growth 12% for plant protein ingredients this year. In summary, recovery from COVID and demand improvements are occurring at Varian paces depending on geography and products.
Complete recovery will extend over multiple years, But we are seeing clear trends that are favorable for our growth portfolio. Please turn to Slide 5. Another area in which we are seeing positive demand indications is ethanol in the U. S. About a year ago, we made decision to idle ethanol production at our dry mills in Cedar Rapids, Iowa and Columbus, Nebraska.
We committed that we will not restart those facilities until we saw economic and market factors that would point to a sustainable recovery. As we move through the winter and into spring, we saw industry inventories falling almost 10% during the quarter, Ending almost 20% lower year over year on March 31. Mobility and driving miles increasing as COVID related With recent gasoline consumption getting closer to pre pandemic levels, Support from the EPA for the Renewable Fuel Standard and China resuming purchases of U. S. Ethanol in the first With all of these factors supporting demand growth and improving industry margins, we decided to restart production.
At the same time, we are At the same time, we are continuing to work with interested parties to complete the monetization of our dry mill From a portfolio management perspective, we're still committed to reducing our exposure to vehicle fueled ethanol. And as demand continues to grow for the wide range of innovative alternative products that can come from natural sources like corn, We expect to see additional interest from other parties involved in biomaterials and sustainable aviation fuel. Slide 6, please. One of the ways we are meeting growing and evolving demand is by introducing new technologies and In Q1, our Covantis joint venture celebrated In the U. S, we've led an effort with industry partners to launch the Barge Digital Transformation Project, which uses new technologies to replace outdated inefficient processes on our in line waterways.
We're also innovating to meet the demand for sustainable solutions. Over the last year, as growth of e Commerce drove demand for packaging. Our biosolutions team worked proactively with customers to apply our corn based, Not even modified starches to help increase the number of times cardboard boxes can be recycled. In Europe, our animal nutrition teams are using life cycle analysis of the including Greenhouse Gas Emissions. We're also continuing to innovate to improve the customer experience.
Last year, as travel was restricted, we launched new technologies designed Now as parts of the world reopen, in Beijing, expanding our ability to support technical innovation and creation. And earlier this month, We were proud to celebrate the opening of the new cutting edge plant based customer innovation lab at our research hub in Singapore. These new facilities will propel our abilities to work with customers to create tailor made solutions to meet evolving and growing consumer needs in the region. Slide 7, please. Finally, I want to speak about the very important issue of sustainability.
Our commitment to sustainability spans our value chain. It includes our work with growers to implement Responsible farming practices, including the 13,000,000 acres we've enrolled in sustainable farming programs globally in recent years. It encompasses our STRIVE 35 goals to reduce the environmental impact of our processing operations, Exemplified by the recent announcement of our partnership to help advance a proposed revolutionary zero emission power facility, Utilizing our carbon capture and storage facility adjacent to our operations in Decatur, Illinois. Sustainability is a key driver of our expanding portfolio of environmentally responsible plant derived products and our efforts to reduce hunger and support the communities in which we live and work. One critical pillar of Our sustainability work for us and our customers is increasing the traceability of our supply chain.
We joined the Brazilian Soil Moratorium in 2,006. And in 2015, We introduced our first comprehensive no deforestation policy. Since then, we made impressive progress, including Now we are taking our efforts to a new level. Last month, we announced our new policy to protect forests, Biodiversity and Communities. As part of this ambitious plan, we aim to achieve full traceability throughout our direct I indirect South American soy supply chains by 2022 and have deforestation free We know they are a key driver of consumer decisions and business success.
But more importantly, they are one of the ways in which we are living up to our purpose and enriching the quality of life around the world. I'll come back later to talk about the next steps in our journey and our strategy. But now, I'd like to turn the call over to Ray, who will take us
The Ag Services and Wellseeds team delivered an outstanding quarter with operating profit of $777,000,000 representing a record for a Q1. Ag Services results were substantially higher year over year. Results were driven by a record Q1 for our North American origination team, which executed extremely well to capitalize on strong Chinese demand. As expected, results in South America were significantly lower versus
the prior year
period. Farmers selling was lower versus Lower margins, including the impacts from the slightly delayed harvest And higher freight costs also affected South American results. Results for the quarter were affected by about $75,000,000 in negative timing related to ocean freight positions. Those impacts will reverse as contracts execute in the coming quarters. Crushing delivered its best quarter ever.
As the business leverages global footprint and diversified capabilities to capture strong execution margins Net timing impacts for the quarter in crush were minimal. Earnings products and other results were higher year over year. While overall volumes were down due to pandemic impacts, we were stronger in both North America and EMEA, refined oils. Global Biodiesel results were lower year over year. Equity earnings from Walmart were lower versus the prior year period.
Looking ahead, we now expect full year calendar year results for Ag Services and Oilseas to be higher than the record 2020 with a particularly strong 4th quarter driven by potentially record global demand for North American agricultural products. For the Q2, we expect results to be slightly stronger than the Q2 of 2020, but significantly lower than the record Q1 of 2021, With stronger crushing and RPO expectations compared to the Q2 of 2020 offsetting Slide 9 please. The Carbohydrates Solutions team again delivered significant year over year profit growth. Our starches and sweeteners sub segment, which includes the wet mill ethanol production, achieved significantly higher results versus the Q1 of 2020. The business managed risks exceptionally well, capitalizing on rising prices in the ethanol complex And favorable coal product values in an industry environment of improving margins and following inventories.
Core and oil results were significantly In general, though demand for sweeteners and
fruitiness were
below the prior year, there were signs of acceleration in the month of March. Starch sales volumes remain solid on demand from the market expectations like packaging materials. Danfosser results were substantially higher, driven by improved distribution of fuel ethanol And strong performance in the Q1 of 2019, we are pleased with our progress in the Q2. 2nd quarter results for Carbohydrates Solutions being in line with this Q1 of 2021, present a significant year over year profit growth. Slide 9.
The nutrition team delivered positive growth on a constant currency basis and Labor's headquarter, driven by strong sales across various markets, especially beverages. Favorable product mix improved margins in EMEA and accelerated customer agreement also contributed to results, Harshstone specific expenses. Green's results were lower, primarily driven by demand The effect of pantry loading in the previous year quarter shifts in demand for texturants. This was partially offset by favorable results in the mid teens, driven by improved product mix. Looking ahead, we expect continued strong demand for flavorings and improving demand for our animal nutrition products To drive second quarter results significantly higher than the prior year quarter, supporting the Trend growth rate for the calendar year.
Slide 11 please. We'll finish up with a few observations from the other segment well as some other items. Other business results were lower in the prior year, driven by lower captive insurance underwriting Results by more favorable ADM Investor Service earnings. There were about 0.17 These adjustment items included one element of the class action lawsuit against Golden Peanut to avoid loss of 2, impairments and restructuring fees related to the exit of In the corporate lines, unallocated cost of about $200,000,000 from the business segments into the numbers of expertise in supply chain and operations. We are still on track for calendar year corporate On allocated costs to 2020.
As expected, net debt was primarily due to the increase from the year over year The effective tax rate for the Q1 of 2020 was Q1 of 2019 was approximately 16% compared to the benefit of the 4% We still anticipate our calendar year effective tax rate to be in the range of 15% to 16%. We remain solid despite a higher commodity price environment with a net debt to EBITDA ratio of about 33% We did close on another U. S. Pension liability transfer transaction on April 1, with about $700,000,000 of liabilities transferred
Thank you, Ray. Slide 12, please. I'm proud of the team for our great start to 2021. And I'm even more proud of the strategic work we have done to transform our company and enable our growing success. We began in 2011 by committing to specific strategic goals and financial metrics focused on what we call the 3 Cs: Capital discipline, cost reduction and cash generation.
We launched new initiatives like our $1,000,000,000 challenge. We prioritize operational excellence and we focused on returns as our primary financial metric. We call that getting fit for the journey. Once we were fit, we launched the next part of our Focusing on 3 core pillars to enhance returns, deliver more predictable growth and strengthen our ability to control our results. During this time, our team has done a great job, Optimizing business performance, realigning our portfolio and building a global leader in nutrition, driving efficiencies Our operational excellence initiatives, I'm expanding through organic growth investments, M and A and the broadening of our customer base and product offerings.
Now we are moving into the next and Innovation. Our productivity efforts will take many actions that were part of our optimize and drive focuses and boost them to the next level. The productivity pillar will include advancing the roles of our Centers of Excellence or The continued rollout of our 1 ADM Business Transformation Program and implementation of improved standardized business processes And increasing our analytics and automation at our production facilities in our offices and with our customers. Our innovation activities will help us accelerate growth and profitability, Not just for the near term, but importantly, for the long term. We will expand and invest in Improving the customer experience, leveraging our producer relationships and enhancing our use of State of the art digital technology to help our customers grow sustainability driven innovation, which encompasses the full range of our products, solutions, capabilities and commitments to serve our customers' needs And growth initiatives, including organic growth to support additional capacity and meet growing demand, Opportunistic M and A and increased leveraging of our very successful venture capital portfolio.
We'll support both pillars with investments in technology, which include expanding our digital capabilities and investing further in product research and development. And of course, all of our efforts will continue to be strengthened by our ongoing commitment to revenues. As I look at our long term plans and this evolution of our strategy, I'm very excited about the value creation opportunities ahead of us. Our teams are continuing to perform at a high level and doing a great job serving our customers. The demand outlook for our products This is strong, driven by the 3 enduring global trends of food security, health and well-being, and sustainability.
And we are delivering on our potential and our promise. That is why we are even more optimistic And as we look beyond 2021, we expect that our sharpened focus on productivity and innovation, Combined with continuing demand expansion, driven by the fundamental needs and evolving demands of our global customers and the multiyear COVID recovery, We'll deliver sustained growth in earnings in the years to come. With that, I'll turn the line for questions.
The first question comes from Ken Zaslow of Bank of Montreal. Your line is open.
Hey, good morning, everyone. Good morning, Ken.
Just want to touch base. You kind of your comment was which was actually really interesting, maybe you Growth sustainable growth for years to come. So with that, just a couple of points. One is, do you look at 2021 or 2020 as the base year from which you can grow? And second, what are the key Demand drivers that you see in 2021 that will continue to propel you or is it more internal actions that would create the
growth? Yes.
Thank you, Ken. Listen, as I was referring in my remarks, we see the future with a lot of optimism. I mean, we think that Fundamentally, we have, as you know, a strong agenda of both now productivity and innovation where there are Things that we can control, that we drive under our control, and we've been executing a similar plan. So now you're going to see the strength And it has a more longer horizon reach, if you will. That's what we like about this sharpening.
But all these is supported by these 3 strong trends that we see in food security, Health and Well-being and Sustainability. So let me give you a little bit of flavor there. We continue to see strong demand. You see food security, of course, as the global population grows, protein demand continues to grow around the world as people increase their standards of living. And as countries come back from the pandemic on this demand that was To a certain degree, suppressed.
We see that in China. We see that in the U. S. And we believe that given the uneven Vaccine recovery, vaccine rollout, this will take several years. So, that's in an environment, Ken, as you know, of Very tight supply demand balances.
So we expect an environment of good profits for the following years. Then when we look at health and well-being, that's propelling our nutrition division and many of our other offerings in which we continue to see strong growth, even exacerbated, if you will, with pandemic events. And we continue to see more demand for products made based on plans That's what we call biosolutions or products that actually replace industrial products made from resources that are not renewable. We have a long list of interested parties in doing more of that, and we continue to develop solutions for that. Again, when we see the trends, when we see the strong demand environment in a tight supply demand environment, Plus the agenda of productivity and innovation, we feel very strong about our ability to deliver earnings growth from where we are today.
So 2020 or 2021 would you say is your year from which we could start thinking about growth?
I think that we 2021, we're going to grow significantly versus 2020. So in 2021, we are establishing this So if you will, maybe we can reset to that level to 2021 and we start from here. We have a rolling 5 year plan, as you know, Ken, that we constantly update And we constantly make it more robust, so we can deliver earnings growth year over year. Great. I appreciate.
Thank you. Thank you, Ken.
Your next question comes from Adam Samuelson of Goldman Sachs. Your line is open.
Yes, thanks. Good morning, everyone. Good morning, Adam.
Hi, Adam.
Hi. So, I guess my first question, really just try Think about the market environment a little bit and obviously a lot of crosscurrents happening at the moment. Specifically, I want to think about on the oilseed franchise and the expansion of renewable diesel. And as we think about, One, you can sort of see it already in the soybean oil market and what that's doing to crush margins. But as we think about second half of the year into next year as some of the bigger capacities start to come on, how do we think about the earnings leverage Both in your crushing franchise, but also in the edible oils business with the refining that we a business that never really got that much attention, hasn't grown much For a number of years given the move away from trans fats, but would seem to be kind of very strategic for a bunch of refiners who don't have pretreatment Over the next couple of years.
And then I got
a capital allocation question afterwards.
Adam, listen, we Said it before we feel very strongly about the future of our oilseeds business. It's a business that was built traditionally in one leg, if you will, from the mill supporting all these, and we were always waiting for the oil story. The oil story, I mean, you can see that right now, oil values that reach record levels, softseed Margins have been the best in the last 8 years, if you will. So, they are supporting very good soy crush margins and great Soft state, Martin. We invested in this many years ago.
Remember, with all this switch capacity, We have about, give or take, 15% of our total crush capacity that can be switched from Soybeans to soft seeds, so that's an advantage for us. And Now all of us are having this new demand that is coming because of all the sustainability trends that we discussed before with this In the form of renewable green diesel. So it just comes to strengthen our belief into this business that is very strategic for us. And to be honest, very proud of the way the business is executing. These are not easy markets to navigate with a lot Volatility with very big values and they are having touchwood and impeccable run and they've done very well Given their sophistication and knowledge of and to be honest also, the visibility that being a full value chain supplier So, continue to work very closely with our food and fuel customers and staying close to them to make sure we can What's coming down the pipe, but again, Adam, very, very encouraged by all these developments and very happy
Okay. That's really helpful one. And my second question is really on the balance sheet. Maybe it's more Great. And I'm just trying to think about kind of capital deployment from here.
Obviously, you have to be very sensitive to the increasing commodity price And the impact that has on readily marketable inventories, but I mean, impressively, your credit capacity has actually gone up on a year on year basis Despite the rising in RMIs, and so I'm just trying to think about what would it take to see Cash return to shareholders or more aggressive or offensive M and A moving forward? It seems like there's a lot of Underlying cash generation in the business and doesn't seem like we've got a clear kind of target of where it's going at the moment. First of all, the balance sheet is what I consider one of the greatest assets of ADM. And while inventories have actually increased 50 Compared to March of last year, we still have significant available credit capacity to undertake Actions, right? And so I think the first priority is continue to fund the working capital needs.
It's not a surprise. Commodity prices continue to go up right now. And so therefore, we will use our balance sheet to kind of fund additional working capital requirements. And secondly, we have flexibility to do whatever we need to do from strategic perspective. As you know, in prior periods during higher commodity prices, there are distressed assets in the marketplace.
And so to the extent that there are distressed assets that make sense for us to acquire in order to consolidate, we'll look at those. That's one of the big advantages of our ADM balance sheet. So but we all know what eventually commodity prices will So but we all know eventually commodity prices will come down and that will free up additional capital in the balance sheet and then we can look at additional incremental returns on capital But again, the dividend, we've increased the dividend. That's an important element of return on capital to our shareholders. But I'm convinced that our balance sheet because we all know prices go through cycles.
There will be a release of working capital at some juncture Again, we have significant capacity for us to take additional return of capital actions. Okay. That's really helpful color. I'll pass it on. Thank you.
Thank you, Evan.
Your next question comes from Tom Simlage of JPMorgan. Your line is open.
Hi, good morning, everyone.
Good morning, Tom. Hey, Tom. Good morning. Could you give us
some more color around your how you're managing your crush assets this year compared to any other? To what extent Are you looking in crush capacity for the next few quarters? And on the oil side, how are you approaching negotiations with potential renewable diesel
So I can say we have reasonable visibility on the Q2 for oilseeds as we have And we stay a little bit more open for the Q3 and Q4. That's probably to the extent that I will In terms of food versus oil customers, listen, we're staying close to both. Of course, we provide we have long term relationships with our food customers that We've been working with them through all these and educating them on this new demand that is coming, And we are forging new relationships with customers from renewable green diesel that of course you know the big issue that industry, feedstock availability. So we're having a lot of discussions that range from the tactical to the strategic discussions with some of them They decide on their future investments. So that's what I will describe the relationship.
Thank you. And then just a question on nutrition. I think you mentioned the shift in demand for Texturants. Can you provide some more color there?
Yes. We've seen some softness in some of those segments. But I would say This is a little bit of a transition time. Nutrition goes to so many applications and Depending on the geography, food services in some parts are coming back and in some other parts that's still delayed. So I would say in general, I'm very pleased actually, nutrition, My own expectations this quarter by growing profitability by around 9% and revenue 5%, it was The demand recovery from COVID and the impact of that in different markets is very uneven around the world as the world is getting access Vaccination rates.
So we are seeing that. So as I said, this was a quarter Remember, investments in nutrition, so we were expecting results similar to last year. We ended up delivering results that are 9% Better than last year, so very happy with this. We had some specific pockets of softness, maybe some Chewing gum, kind of softness, some softness in some places in animal nutrition, but overall, Very strong flavors, beverages, supplements, fibers, probiotics, specialty So, the main trends remain there.
Thank you for that. And maybe just one more question for me. If you wouldn't mind, could you share your house view of U. S. Planted acres of corn versus beans?
Yes. I would say In our view, given the early planting start that we have in the U. S, I think we have corn about 17% on soybeans and about 8% at the moment. We believe that there is probably upside To the USDA numbers, so we believe that by the next time USDA will report acres, we're probably going to find maybe 5 more 1000000 acres combined between soy and corn, kind of evenly split, if you will, give or take, between the 2.
Your next question comes from Luke Washer.
Hi, good morning, everybody. Hi, Luke. Hey, Luke.
So I wanted to touch on soybean oil a little bit. I know we've talked a little bit about renewable diesel trend, but Have you seen soybean oil demand ramp this quarter relative to your expectations perhaps at the beginning of this quarter? And is this largely driven by renewable diesel demand? Or are you also seeing increased demand for edible oils? And is there any destruction that's happening with the prices where they are?
Yes, listen, we continue to see strong demand. I think that as some restaurants and Some places are reopening. We started to see food services coming back a little bit. To be honest, we saw that across the company, not only in soybean oil. I will say March orders We're significantly better than January February, and I think we see that continuing in April.
So again, I mean, that recovery, but we can see that. I would say, of course, we know our green diesel customers are starting to show in demand, so we see that increased demand. So in general, we see a strong demand. In terms of destruction of demand, we haven't seen To any degree, probably the only example I can pinpoint is Brazil with biodiesel that reduced from B13 to B10. That's probably the only thing you can say.
Things have become expensive at least. As I mentioned In my onset remarks, this is having a very difficult time with COVID, so suffering and I think the government is trying to alleviate some to alleviate a little bit of pressure on inflation there. So But that's probably the only example I can pinpoint to at this point of demand disruption.
Maybe one more on Nutrition. Can you talk about what's driving your comp growth rate that you expect this year? What are the ways that you're operating Profit margins higher, is this simply growing in higher margin businesses? Or are you doing cross selling or any other actions you're taking? Maybe just some of
the puts and takes for this year.
Yes. Yes, absolutely. Listen, remember that the 15% came from we put together the 5 year plan and You know us achieving our target of $1,000,000,000 OP by 2024 give or take In order to get there, we were planning to start this year. So and this year is not an exception to that. We plan 15%.
When we started the year, we were planning to start the year, as I said, kind of flattish versus and the business continued to show strength. How that is revenue growth? Part of my confidence is given by the pipeline. We have a strong pipeline. We are very the team is very disciplined and religious in looking at the pipeline and looking at customer by customer on the And that pipeline continues to grow, and our win rate continues to grow.
So those are very positive indicators Your value proposition is very appreciated by your customers. Certainly, Another thing that we do is that the team manage the product mix very well, and that Allows us to increase profitability even in excess of the revenue growth that we see. And you know there are different parts, for example, for flavors and for plant based proteins and certainly for probiotics is Much more of revenue growth story for parts like story. And so we have different ways to manage this portfolio that we call nutrition, but it's a very complex portfolio. But that complexity also brings a lot of growth opportunities, and that's why it gives us the confidence that it's a very balanced From an opportunity perspective, supported by a very strong pipeline.
Your next question comes from Robert Moskow of Credit Suisse. Your line is open.
Hi. Thank you and congratulations. I had a question about the crush margins in the quarter. I mean, such an outstanding result. And I think you've mentioned that risk management or just execution played a role.
If you look at spot margins during the quarter, just looking at board prices, they weren't nearly this good. But I've heard that you and others have been Delivering results much better than that. So I guess my question is, can you explain why it's so different from what we see in the spot markets? And is this sustainable into 2Q or are there some unusual aspects of Q1 that we should know about?
Yes. No, listen, it was a very clean quarter. There's nothing that you should know about other than cash, crush margins We have a strong product demand from both meal and specialty oil. And these margins remain considerably stronger than what both crush indicates, particularly North America and Europe. If you look at boat crush in North America or Europe, front month is about $25 per ton, and we Margins on a cash basis of around $40 per ton, so there is a significant difference there.
I would say, we see as I said before, we have reasonable visibility into Q2 given the book of business we have, so we shouldn't I see any surprises there and we are expecting another good quarter of crash over there. So I mentioned before, we have our switch capacity. Softseed margins have been good. They moderated a little bit since Q1, but they continue to be very good. So oil values continue to be strong and demand for our customers in mill in North America, our Commerce are enjoying good margins at this point in time, so they are trying to produce as much as they can.
So We see strong demand from both legs of the crush. So we feel good about it all at the moment.
Your next question comes from Ben Bienvenu of Stephens. Your line is open.
Hey, good morning, everybody.
Good morning, Ben.
I want to focus on with 2 questions on the carbohydrate solutions Business which was really, really solid in the quarter. And focusing first on the starches and the sweeteners business, To the extent you can, can you disaggregate the contribution from your ethanol production out And on that starches and sweeteners business, were net corn costs a tailwind for you guys? I know you favorably hedged your gross Corn costs in 4Q. So I'm wondering kind of what the relationship between that hedged corn versus the strong co product values delivered as it relates to your Realized net corn cost. Yes, Ben.
So let me do reverse order. So net corn cost was a tailwind for I mean clearly, as we pointed out in the last earnings call, we actually procured a lot of our At a very attractive price last year and hence we benefit from basically a very good procurement and hence net corn was A tailwind for us, despite the fact that when you look at the Board, corn costs are higher right now. With respect to the question on disaggregating starches and sweeteners My only comment is one of the big improvements in starch and sweeteners in the quarter compared to last Quarter, last year's Q1 was the fact that we didn't have the corn oil mark to market impact. If you recall, last year, we had about $50,000,000 negative impact Due to the corn oil divergence from soybean oil, we didn't have it this year. So that was clearly a tailwind in terms of our results.
From a volume perspective, when you look at the starches and sweetener business right now, We're still looking I'm looking at corn high fructose corn syrup and corn syrup, we're still down versus last year. So we are suffering from the impact of the pandemic and because the foodservice sector has not fully recovered, we indicate that we're starting Elements of recovery in the month of March, but from a volume perspective, in the Q1, total sweetener volumes are still down versus last year, Right. So therefore, that's kind of like a headwind, but we expect that to progressively recover as we move through So I guess overall, I mean, we've been actually pretty pleased in terms of the performance. Given this particular headwind we had in 1st quarter, we were very pleased in terms of how we managed the business, Fable Net Corn Procurement, Fable Risk Management and frankly even with the cold weather impacts that they had in the Q1, we were able to keep on delivering to our customers, which is very, very Very good. Okay, great.
My second question is on DCP and your decision to restart your dry mills. We're seeing improving driving demand, gasoline demand off of kind of lows this year and last year. I'm curious though, we've seen production in the weekly EIA numbers come out that have been a little bit Lagging, I think what might be expected when thinking about your facilities coming back online. Can you help us think about your The outlook for as much visibility as you have as it relates to ethanol, S and D, and when you think about the velocity of restarting your mills, What is your focus there? Are you worried about that disrupting the S and D and ethanol?
To the extent you can give us any color on
They have grown in the 1st 3 months of the year. They are import of proteins. That's up like 20%, And they continue to have very strong forecast for the importation of grains to feed animals. So that's what we're seeing. Of course, corn prices have been expensive in China.
And So China has been taking as much as wheat as they can from Europe to try to Make a little bit of substitution, but they also don't have infinite wheat reserves. And during this year, we think that both Gold reserves and with reserves needs to be replenished at one point in time. We don't think that that's happening now. Nobody is replenishing inventories in the face of an inverse, but we think that that may happen later in the year. Okay.
And Juan, if I could just ask you a follow-up about your comments on sort of bio based products that you made during your prepared remarks. Were you just referring to sort of the initiative the existing initiatives around FDME and cardboard and SPIEBER and acrylic acid or are there new things that you're looking at We're going back to some of the old stuff like PHA or just what did you want to tell us about that, anything incremental?
Yes. I think that there is a portfolio of things. Some of the ones you mentioned, we are not going back to PHA. But there are some more in areas like construction or pharma or Personal Care, we continue to find customers that have development capabilities, but they want to change their input. And instead of being natural gas on oil, They want it plant based.
And for that, listen, we have we stand on a great source of sugar that is a carb solution business. We have Fermentation Technologies, and we have a good cost position here in the U. S. And as we have the capability, the critical mass. So I think that we are an attractive partner that everybody that is brainstorming or looking for a solution to match their sustainability targets It's having discussions with our team.
So, there are some things that we cannot unveil right now, but we may unveil it over the course of the year.
Your next question comes from Michael Piken of Cleveland Research. Your line is open.
Yes, good morning. I just wanted to talk a little bit about South America. Maybe we could With Brazil and just it seems like there's been some weather issues with the safrinha crop and just trying to understand how you see kind of your Volumes and business shaping out in South America over the next couple of quarters. And if net net, at this point, Are we cheering for a bigger South American crop or a smaller South American crop with respect to your overall global footprint?
Yes. Thank you, Michael. Yes, South America the weather in South America, of course, delayed a little bit the crop And certainly, it's hurting a little bit the safrinha. We still Traditionally, April May are dry weather months in Brazil, so that's not great for this and that's what Putting a little bit of the premium in the weather premium on corn. So we expect that crop to be a little bit smaller, and Brazil exports about 35% of their corn production, so that is an impact in the market.
What are we rooting for? We are rooting for larger crops. We like to move crops. So the soy crop is It to be a good one, maybe 135,000,000, 136,000,000 tons, so that's in check. And I think what Brazil is doing at the moment is Maybe it's getting a little bit of corn from Argentina, certainly it's getting wheat to try to replace some of the corn in feeding.
Because adjusted, as I said before, the B13 biodiesel to be 10. So, it's a year in which Brazil needs to navigate with On very tight stocks, and so it's going to be a difficult year and a year of heavy management
And then as a follow-up, just Thinking ahead to 2022, with the projected growth in renewable biodiesel combined with very Or tightening corn market. I mean, how do you sort of see the acreage playing out in the U. S. For 2022 between corn and soybeans to meet This demand and I guess from your perspective, I know you guys have some swing capacity, but there's it seems like there's other Question capacity up in Canada, softseed, 3 of their competitors have announced expansions. How do you see kind of the margin environment working out if we need to
I think that, of course, the farmer reacts to pricing. And although This may be too late to shift a lot of acres to corn given how late we are already. I think, 1st of all, they will try to plant as much as possible next year as well, given Prices will continue to be elevated. I think, listen, as it gets tight, the market, that's an advantage of our value chain. Our procurement, our loan value chain, the fact that we have such a good coverage of everywhere In a tight market, that's where our footprint shines, and we get the competitive advantage, if you will.
We like to have more crops, but in periods in which crops are going to be tied, we have a good system To make sure we get our hands into the crops. And because of sometimes basis go up, but To be honest, given the strong demand and the good profitability of our customers, I think we will be able to price those in. So I think that We are looking constructively about in terms of margins for the future.
And your thoughts on the acreage shift?
It's too early to tell, and There are too many factors. I mean, we are still trying to plant. We haven't planted like 10% of our this crop. It's difficult to speculate about 2022 crop.
Okay. Thank you.
Your next
But could you elaborate first on the ag service piece within ASO, how you think about that Turning in into 2Q and particularly in light of what we're seeing in your appendix on the cumulative crush Sorry, timing gains because I remember last call you said the vast majority of the close to €300,000,000 is likely a reverse within the And we haven't seen much in 1Q. So how do we think shall we think about those timing gains? And how shall we think about the underlying business within Ag services in particular for the Q2?
Yes. For Ag services, seasonally, Q2 will be lower than Q1, I mean, that's what happened. I mean, North America, we had a very strong Q1 in terms of North American exports. Again, partly, As Juan indicated, a delayed South American harvest. It allowed the export window in North America to really benefit.
And then we just had significant demand Which resulted in very strong elevation margins in the Q1. So 2nd quarter for Ag Services, it will revert back So more of a normal level here. Demand environment is still good, but not going to be as stellar as what we saw in the Q1. On your question on timing differences, Remember, this is crushing, right? I mentioned in my prepared remarks that there is about $75,000,000 related to global trade and ocean Great.
That will reverse over the course of the year. In the appendix, the timing effects referred to in the appendix are related to crush. And just a reminder, in the Q1, we didn't see much of a reversal in the Q1 despite the fact that we had at the end of 2020, about $295,000,000 in timing effects. And the reason being is that while we're seeing some reversals occurring, we're also building up new timing effects. Yes.
As you know, cash crush remains extremely strong. So some of the new contracts we're putting on were actually creating new timing effects. And so I just want to just kind of caution people that in this type of environment, even though there's about like $265,000,000 of timing effects yet to unwind, Because of new timing effects that will likely occur over the course of the year, we may not see the full unwind occur this year. So that's just my only caution I want to provide listeners to the call on these timing effects. Thank you.
Okay. And then just, Ray, not preaching much But how do you think about the X Services on a year over year basis, not on a sequential basis, just compared to Q2 of last year? Because there was obviously A lot of things going on and some disruption in some of the plans, just to understand how we should put the Q2 of 'twenty one into
Yes. So in my prepared remarks, I did say that we're likely going to have lower ag service results This year's Q2 compared to last year, right? So, I mean, don't forget, remember last year, we were benefiting a lot from South America, farmer selling, right? And that was extremely strong last year, Q1, but particularly Q2. So we're not going to see that impact this year.
So that's going to be the primary driver as to why Ag Services this year Q2 will be lower than last year's
Your next question comes from Erik Larsen of Seaport Global Securities. Your line is open.
Yes. Thank you. Congratulations, everyone. Thanks, Eric. I'll make it really quick.
I have a
couple Questions that one's a real near term question, kind of exports over the next couple of quarters. The USDA is way behind I think in what they're giving China credit for Corn exports through the year are something like 6,000,000 or 7,000,000 metric tons. And yet we're seeing the cash markets Futures are strong, but the cash markets are nothing short of astonishing. So are we trying to fill some of those On price, maybe China contracts from U. S.
Farmers, are they just holding back? I guess how tight really is the U. S. Corn market. We know the oil markets are really tight.
Canada is importing rapeseed from the Ukraine. So we know that the North American oilseed markets are tight, but how tight is the U. S. Corn market right now given cash prices.
Yes, Eric. Listen, we think, as I said before, that The U. S. Continues to be competitive in the Q2 for corn exports, so we're going to see some of those exports. As Ray was saying before, ag services probably elevation margin will not be the same because we won't have the same program of soybean on top of that.
China continues to be buying everything they can. They're buying corn, but they're buying wheat, as I said before, from several places. We have certain weather spots in the world. Canada And France are too cold and too dry. That has put some pressure on Wheat with all this demand, Australia's infrastructure is trying to recover from a cyclone, so the Portability of wind there is also a little bit limited for loading.
That has created some pressure. So for the moment, corn continues to be competitive, the U. S. Exporting corn, but Very soon, it will become landed in China a little bit more expensive than wheat, but then wheat is getting tighter because of the bad weather. So, We are looking at all those dynamics.
So, it's very difficult to answer the spot question specifically, but that's what Our team does all day is looking at all those dynamics and making sure we Alter our product flows to fit the best origin.
Okay. Yes. Okay. Thank you. Yes.
Well, China is buying every bushel of barley and sorghum and I
think they're around the world everywhere.
So the final question is a longer term question that I'm really Somewhat concerned about, we've seen the Biden administration now talk about a 30% -thirty percent conservation plan, meaning they want Put 30% of U. S. Acre of all U. S. Land, 30% of all water into conservation programs, At the same time, increase the CRP program.
Does that mean that we're in a land grab here? I know we're in early stages. Does the Fed buy land? Do we encourage people to put it aside? Does it take more farmland out of production now at a time when We really actually need the production.
How do you what are your initial reads of the Biden's Recently announced conservation plans.
Yes. Listen, I think the administration has shown from the beginning that, Fighting climate change was going to be one of their priorities, which we support, and we have a strong Sustainability program, I think that we need to start working and it's important to work very closely With the farmers to try to listen the farmer understand their responsibility. We At the moment, maybe 25% of acres doing precision agriculture, which I think will increase yield without needing more And I think that there will be a discussion with the administration and it will be a pressure between environmental long term goals and Short term feeding needs of the world. The world needs the U. S.
Capacity as they need the Brazilian So these prices show that we need those acres. So I think that this cannot be automatic. It is something that we will have to work out, balancing all the stakeholders, people that need the food with the long term needs for conserving the planet.
All right. Thank you, everyone.
Thank you, Eric.
And that was our final question for today. I will now return the call to Ms. De la Huerta for final remarks.
Thank you, Chris. Slide 13 notes upcoming events in which we will be participating. Before we close, I wanted to note that I will be transitioning to a new position As President of our Sweet Foods and Dairy Products Group in ADM's Human Nutrition Business. I will be transitioning my Investor Relations role to Vikram Luther, We will also continue to be the CFO for our Nutrition business. I'd like to thank our analysts and shareholders for all their insight and support over the past 3 years.
And as always, please feel free to follow-up with me if you have any questions. Have a good day and thanks for your time and interest in ADM.
Thank you for your participation. This concludes today's conference call. You may now disconnect.