Hi, thanks for joining us today. I'm Tom Palmer, Equity Analyst at JP Morgan, covering the Broader Food Space, including agricultural products. Pleased to have with us today Juan Luciano, the CEO of Archer-Daniels-Midland. ADM is one of the largest processors and distributors of agricultural commodities in the world. It sources products like corn, Soybeans, and wheat, and both distributes them around the world and processes them into a variety of products, including Soybean oil, Soybean meal, sweeteners, starches, ethanol, and flour. Key end markets include food, animal feed, and biofuels. It also has a growing Nutrition business, with products that include flavors and colors for beverages, ingredients for plant-based meat, and a range of pro and prebiotics. So with that, welcome, Juan. Perhaps you can start us off today with some broader comments, framing ADM's positioning and strategy.
Yeah. Thank you, Tom, and good afternoon, everybody. Great to be here. Before I do that, I would like to recognize last week we had an incident in our plant in Decatur. So, as you can imagine, the safety and well-being of our employees and the communities where we operate is our paramount important for us. So we're focusing right now in the health of those colleagues still being treated, and I want to take a second to thank all of our colleagues at ADM that are working tirelessly to not only help them, but also bring some of the affected areas back to safe operation. So I wanted to say that before we started.
So if I provide some broad overview of ADM, I'm not sure how familiar are you with what we've been doing, but I will say the transformation of ADM that we have been doing over the last maybe decade, we tried to base it in two fundamental pillars. One is about financial discipline as we invest, and the second is the agility of our execution, so execution agility. I think that that has had a compounding effect as we try to transform and perform, and I think that if you look at from a financial perspective over the last three years, that arguably has been the worst of, or the most difficult for our company, or maybe any sectors, if you.
For our sector, or maybe any sectors, given that we have to deal with the pandemic, a war, and certainly a very severe weather around the world. We have been able not only to expand our earnings power, but also to increase ROIC well beyond the forecast that we have given for a long-term perspective, even as recently as a couple of years ago. As I said, I think these financial results are the culmination of, if you will, of this compounding effect of enhancing the structural changes of our company while maintaining a culture of good execution. This year has not been an exception to that. We had a very, very strong first half of the year, and we're looking to finish 2023 strong as well.
If I give you some perspective about what informs our forecast for the industry, if you will, there is no doubt that the supply-demand balances of the commodity in the food space is getting to a more balanced position, if you will. I think ADM has been able to leverage our origination footprint and our export capabilities, as well as some of the recent investments we have made in port infrastructure, as well as new capacities to expand margins across our value chain. Also, I think biofuels in general has been a very good backdrop for our strategy and for our company, as the demand stay and remains very robust there. We have seen very strong margins in biodiesel.
We have seen very strong domestic and export demand for ethanol, and we have seen an increasingly uptake of Soybean oil as more renewable green diesel plants come into operation. Actually, coincidentally, today is a very important milestone. We are receiving for the first time Soybeans in our Spiritwood, North Dakota, new crushing plant. That starts the startup process, if you will, for us, so we will be crushing the first beans, probably in the first week of October. That is adding about 1.5 million tons of crushing capacity to our footprint, allowing more production of low carbon intensity feedstocks. We also continue to make progress in our decarbonization efforts. You have heard us before talking about carbon capture and sequestration expansions and pipelines.
We have just signed an agreement with Wolf Carbon Solutions in terms of providing low carbon emissions power to our plant. Again, this is in our continuous effort to provide more sustainable products to the food, feed, fuel, industrial, and consumer products area. So all those plans continue to progress. In parallel to all this, we continue to build capacity to bring new businesses, to bring innovation capabilities into the company. We are very reassured as we look down the food value chain on the fact that food demand has stayed very resilient. We have seen strong vegetable oil demand. We have seen strong milling demand, flour, and other products. We have seen a very stable sweeteners business, has stabilized.
I would say where we have seen some pockets of destocking , particularly had been in the pet industry, and we have seen a little bit of a slowdown on the demand uptake in things like animal and plant-based proteins. This, in part, has been responsible for maybe our Nutrition growth to come a little bit slower than we have previously anticipated. But we're taking a lot of measures, and we are still taking it aggressively in Nutrition, and we see already the fruits of some of that, which is giving us a good indication of a healthy rebound that could come next year, so we feel excited about that. On the financial side, and to conclude, our balance sheet has never been healthier.
We need about 30%-40% of our cash flows to fund our plan, our organic plan, and we continue to give priority to that in terms of capital allocation. So the first priority is to invest in automation and digitization of our operations, in the decarbonization of, of again, of our major operations, and in providing new capabilities for customers to, being able to innovate even faster with us. Sixty to seventy percent, again, of our free cash flow is free to return to shareholders or to, available for strategic acquisition. So that gives us a lot of optionality. We've been, as you know, growing, paying dividends for 90 years, and we've been growing dividends for 50 consecutive years, and we plan to continue to do the same.
And, this year you have seen we've done $1 billion of buybacks in the first half, which is a strong indication of how, we feel about our intrinsic value, the intrinsic value of our company. So at this point in time, I think that, we are very confident that we are very well positioned for a strong 2023, and, we expect to walk into 2024 with a very strong momentum. So maybe I pause with that, with my commentary, and then let you or the audience-
Yeah.
Kind of field any questions you have.
Yeah, great overview. Thank you. Maybe just start off on the Ag Services and Oilseeds side. You made mention of some of the investments that you've made in the business, but maybe we could dive into that a bit more. You've got Spiritwood opening here, you've expanded your origination footprint. What's still to come? What are the investments as we think about the next couple of years that will start rolling out and contributing on top of those?
Yeah, I would say in Ag Services, in the grain area, there is a lot of activity in terms of helping to transform agriculture from current practices or historical practice into more regenerative practices. So, we have a plan to grow the number of acres that we work with farmers to transform that. It's been a very enlightening exercise because you take all the farmers with old practices, but with a lot of willingness to become part of the solution, to help to build a more sustainable agriculture system, and also the pull from the customer side. We find ourselves in the middle, in a very good position to be able to articulate that.
That takes maybe not that much capital, but a lot of people in terms of the conversion of these contracts, all the way from the way we contract with the farmer, so all the way to legal, from financial considerations and measurements and all that. So that's an important piece. That's an important piece that not only allows the industry to be better, but it tightens our relationship with the customers and bring new characteristics to our products. For the first time, probably in 20, 30 years, the industry is not necessarily a price taker in grains, but the discussion have changed more from what is your price from the product on how this product has been raised or created and, you know, how much do you have available, and then it becomes the pricing.
So, when you see some of the margin structures that we have now in ag services and the performance, a lot of that is on this growing trend. And as we get more acres brought into production, that way, that becomes increasingly a part of our differentiated bushel or differentiated tonne, if you will. So that's an important consideration. As you said, the biofuels is important, bringing some crush capacity. ADM is one of the first ones to bring this 1.5 million-ton in partnership with Marathon, in this case, for Spiritwood, North Dakota. I think you're gonna see that with other partners across the value chain that we're gonna have.
For every processing unit that we have, we're always gonna be looking at the, again, the automation and digitization of that, to bring more technology into that, to being able to squeeze a little bit more yield out of the grain of Soybean or the grain of corn. So that continues to be... And then all these products, for every customer out there, every account out there that you own or you see, that has a decarbonization pledge for 2050 or 2030, everybody's-... part of their footprint or their blueprint is a plant-based material. So our ability to generate low carbon intensity feedstocks as we decarbonize our units, we will become more an enabler of some of these products. Some of these products will go to food and feed, some of these products will go to fuel for industrial products or consumer products.
So that's a very fertile area for ADM as we go forward.
Right. Thanks for that overview. Maybe sticking with AS&O for one more.
Sure.
We've seen a broader market environment that's been quite strong over the past couple of years, and-
Yep.
You noted that we're heading towards, at least from a supply-demand standpoint, more balanced than we've seen.
Yep.
So is this kind of a more normalized environment we're seeing now, as strong as it is? And how do you think about that evolving over the next couple of years, just given that there is some capacity coming in crush? That doesn't necessarily mean-
Mm-hmm.
-the world, there's more meal and oil, but there's more, at least in North America. And we could see some pretreatment capacity maybe on the refined side. So how, how do you think about kind of those, those moving pieces in what really has been a great backdrop?
Yeah. So, first of all, on the normalization of crops, of course, after a couple of years, especially with the war and the La Niña, if you will, effect, that you have higher prices to a certain degree, exacerbated also by government intervention. So this is my advertisement into please let the market be the market. That will be easier for everybody. I would say the farmer reacted to that, planting more, and so we see the correction. And after... We said it before, this is gonna take two or three years, and we see that correction. I think the issue that we need to be aware is a lot of the important dynamics are at the micro level.
So although on a high perspective, you might see some normalization, there are always regional dislocations. If Brazil have offset the, you know, the decline in Argentina from a Soybean perspective, well, there is still an issue when Argentina needs to produce, and those customers are still short. But there is also an issue of Brazil being able to export the crop with the same logistical system that they used to do for a smaller footprint. So, there is still the issue of weather and very severe weather, and we need to manage through that. There is still the issue of Ukraine. I think the Ukraine concept at times was, in my view, misunderstood. I was more concerned last year, I was less concerned or the initial year, because the crop was there.
It was stored in Ukraine, and it was more a matter of accessibility of the crop, but not availability. There were 40 million tons of grain. Now, after a couple of years in the war, when you have, you know, less people available because they've been drafted, or you have more fields damaged, or you have more insecurity about who's gonna own the grain eventually, then it becomes more an issue on availability. Is the farmer in Russia planting as much as before? Is the planting in Ukraine happening as much as before? So I'm more worried today, if you will, even if prices are lower, than maybe I was a couple of years ago. So my point is, we always have to go through this, and that's where companies like ADM and what I said, the agility of execution, make a difference.
That's where you look at those investments that make sense to do for the long term or not, so.
Thank you. Maybe switching over to Carb Solutions.
Yep.
You laid out profit expectations in December 2021, and really have outperformed those over the past couple of years in the segment. What's driven the upside, and how enduring do you think it is when we look at that, especially on the wet mill side?
Sure. So, really, the outperformance, a couple of reasons. One is, I think that sweeteners, as I said, have stabilized. Maybe from a long-term perspective, we think about more a secular trend of sweeteners, but I think that the demand of sweeteners has got into a defensible core, and I think that we, we've seen that stable. I think also we have grown some of our optionality, that if we were making about 22 products from a grain of corn, that provides optionality. Now all of a sudden, with BioSolutions, that's a business that for us is growing 15% per year. It brings new uses to that. So that allows us to leverage that capacity, if you will, that fight for the grind of corn better among different things.
So we have better incremental margins across the whole chain. I think there have been a lot of efforts. The corn business in ADM, the Carb Solutions, is the biggest from an energy perspective, the biggest plant. So when we think about operations, operational improvements, that's where all the manufacturing cost in ADM resides. So if you have yield improvements, if you have energy improvement, energy hedging, that's where it all is. So part of that, risk management also, and automation comes into play, and we implemented... Bless you. Projects like in Marshall and all that, that are double-digit improvements, and we will continue to introduce those products. So, and then we have all this decarbonization.
Again, we talked a lot about decarbonization, but ADM sometimes, and my predecessors, and so I don't take a lot of credit on this, we're pioneers in some of these things. We introduced the veggie burger in 1982. We've been doing carbon capture and sequestration, the only on-purpose carbon capture and sequestration unit in the United States since 2011. So we have very good knowledge about that. We have very good data about that. We have injected already 3.5 million tons underground, so we know how much it will cost, how long it takes to be developed, how do we keep the staff there safe. So, all these things is getting.
benefits to ADM, because either we get the credits, and we get tax credits, or we get the carbon credits, if you will, and we can assign, assign that to several products. So if we decarbonize a piece of that, we have one well that we have done that with. We're gonna have seven, but we have one at this point in time. We can assign those credits, for example, to the milling industry. So we said we are the only carbon neutral milling industry in the U.S. So if you bring carbon neutral wheat, we can have, we can process there, you can have carbon neutral flour, if you will.
So we have that ability that help us with margin here and there, because sometimes we have product that we add, that we're regenerate the ag practices on top, or we get our decarbonization practice into that. So that helps to margin. That helps to stickiness of relationships, that helps to margin. So that's where you see the outperformance, and hopefully you're gonna see that outperformance having to be explained in further quarters. I don't mind the challenge, so.
So let's stick with that for a minute on the carbon capture side. I think one thing you've discussed a bit over the past couple of years is the potential to pivot your ethanol footprint towards feedstock for sustainable aviation fuel. And I think this is kind of a two-step process, right? One is look to really capture the carbon capture at all your facilities, and then, two, explore how you wanna kind of enter that sustainable aviation fuel side, be it through partnership or other means. So maybe we could talk on both of those pieces. What's kind of the timeline and opportunity in terms of lowering ethanol? And then secondarily, you know, how do you look to then take that and kind of pivot it towards the SAF side?
Yeah, so you're correct. So if you think about sustainable aviation fuels, it just as one of the key markets that doesn't have a quick solution to decarbonize and to get there. Today, if you make jet fuel, you make a carbon intensity of about 80-90, give or take. With our decarbonization indicator, we can get there to provide an ethanol for that, that can make an SAF carbon intensity of about, you know, something between, depending on the measurement, between 25 and 35 or something like that. So about half of what you need to achieve Decarbonization. So that could open that market for that. How do we do that? You hear us making announcements, individual announcements.
So first announcement we did in March, we agreed with the City of Decatur to expand our carbon capture and sequestration wells from one well or two wells that we have to, like, seven wells. So that increases our capacity to put everything in the reservoir. Then you hear us making announcements about pipelines, whether it's Tallgrass or Wolf Carbon Solutions, building pipelines from our other ethanol plants. When you talk about decarbonization, one of the benefits that we have in ADM is that we are in the ethanol business. When you take carbon from any smokestack out there, CO2, you get CO2 with a bunch of cats and dogs, and it's very difficult to eliminate those. It takes a lot of capital.
It takes OpEx to eliminate the other cats and dogs before you can pump the CO2 underground. When you make ethanol, you get what you call biogenic CO2, which is like 99.97% plus ethanol. So that allows our ethanol can go directly. You bring it in a pipeline, you can go underground, and you get an immediate credit. So that's an advantage. So we're taking that first, and that is providing us the credit, if you will, and the low carbon intensity, you know, score in indicator to be able to offer that to others. Whether we're gonna make bioproducts with that or whether we're gonna assign those credits or those attributes to our food products or feed products or SAF, it will be a value choice for us.
We are not planning to make all those products, so I'm not gonna build a 100% own SAF plant. I'm not gonna build a plastic plant. We're gonna make low carbon intensity feedstocks, liquids available to partners. Somebody may make polyethylene with that, somebody may make a SAF from that, and we, at that point in time, we will decide what percentage of those things we own. The recently announced joint venture with LG Chem, for example. So LG Chem is a typical company. They have a net zero pledge by 2040. In order to be ready in 2040, they need to do two things: decarbonize, and these are public information, and do recycling. So in the decarbonization, it's like replacing oil-based materials. PLA is a big plastic for them. We're gonna make lactic acid for them, low carbon intensity lactic acid, so plastic, plant-based.
That lactic acid, for us, that joint venture is give or take about 50/50 with them because we will make that, and we want a sponsoring account. The PLA, the plastic joint venture, is a 10/90 joint venture, because I just want to be there to make sure that the connections are fine, that the transfer pricing are fine, but I don't need to own a Plastic Manufacturing. The same model could be thought for biofuel or other plastics. I want you to see ADM as we're gonna leverage what we have, and we're gonna make carbon intensity feedstocks available to others. So we will be an enabler of decarbonization, if you will.
Thanks for that. Maybe switch over to the Nutrition side.
Yeah.
One thing that's come up a good bit in the meeting this morning was the opportunity on the health and wellness side, and how much you're investing there and see the potential for growth. So give kind of the overview you've been providing, which I think has been helpful in terms of that probiotic, prebiotic.
So we align. You've heard me saying before, hopefully, that we align the company with three fundamental trends. So food security and sustainability, which I spoke a little bit, and then health and well-being. And the health and well-being is more on your beliefs of Nutrition can be a part of changing health for the people, and also that, for the first time in history, over the next 5 years, the population over 65 in the world will be bigger than the population under five. So we're all getting older, we're all living longer. That puts a burden on the healthcare systems of everywhere in the world. So there is this view in the Nutritional industry, it's like, can you start bridging that gap between food and pharmaceuticals, if you will, and go into more functional foods?
So one area of that is you eat healthier. You replace more fat and sugar for more protein and fiber in your diets, and you're doing that, and we're doing that also as we introduce formulations as part of the Nutrition. But another part is the linkage between your microbiome, gut health, and your overall health. So we do a lot of clinical trials looking at the effect of some of these microorganisms in your gut and the impact. And we know that the two of us may take the same medicine and one has a, you know, more potent effect in you than me. We can take the same food, you can gain weight, I may lose weight. It's all about how, you know, how our microbiome is populated.
So we do a lot of clinical trials, and we bring that. And that is good for humans, but it's also increasingly good for pets or animals in general. So we have probiotics that help with the methane generation in cows, and not only the methane generation, but also the milk production. So you can sell it to the farmer. Even if you don't care about sustainability, you can sell it as a productivity. Your cow, if it takes this supplement, will produce more milk, and by the way, 30% less methane, you know, creation into this. So you're gonna see it in pets, you're gonna see it in animals. Remember that animals are trying to eliminate antibiotics, but you still need to keep the animal healthy. So a lot of that is how do you prevent things from happening? And you.
So there is a very fertile ground. We entered that industry not that long ago. Is very synergistic with the rest because we put all that into a lot of formulations. And one of the big... Why I'm excited of the size of this? Think about it. If you think about vitamins penetration in houses, in homes, if you take the U.S., about 70%-80% of the homes consume some kind of vitamins in the house. The penetration of probiotics is about 10%. And there is much more clinical trials and documented evidence of functionality in a probiotic than in a vitamin. Sometimes you take the vitamin, but you don't know exactly what it does, but you feel a little bit of a cold and you hyper you know add vitamin C to your body.
I mean, do you know how many do you need to take? No, but, you know, you take... Well, I mean, I think that there are more and more people knowing that you should take twice your probiotic when you travel, when you're gonna be poorly sleeping. But now we can have, with precision, things like we knew it, this is good for atopic dermatitis, this is good for obesity, this is good for male sterility, this is good for insomnia, this is good for migraine. And these are things that sometimes the overall pharmaceutical industry doesn't align with precision. So I think that, the other thing that gives idea of the potential of this, originally, the probiotic is a microorganism, that it needs to be alive to provide the functionality.
That's why you only see probiotics delivered in two ways: in a yogurt that you keep refrigerated, or in a pill that you have surrounded by aluminum and all that as a supplement. We have introduced we have now postbiotics, which is an organism that preserves the functionality, even dead. So now you can put it in food, that you can put it in the oven, that you can microwave it, because even at 400 degrees. Before, you couldn't do it because you killed the organism. Now, the organism is already dead by the time you get. So you can extrude the product.
You can put it in solid product, you can do noodles with that, you can do a cereal bar, you can put it in baby food, you can put it in pet food, you can put it in all kind of things that you're gonna take and you're gonna retort, you're gonna put into the microwave. So my point is, when you see the penetration in homes, given the clinical evidence of that, and when you see the ability of postbiotic to include them, the ways in which you deliver that product, I think is a huge potential. So we're very excited about the future of that.
Thanks for sharing that. Maybe second, on the human Nutrition side, there's been a little bit of moving parts this year with maybe plant-based not performing as well as it once looked like it might. The flavor side seems to be doing well. As we think about the coming year, when do we start seeing more of an inflection in terms of the human Nutritions business accelerating? Because it does sound like the pipeline is quite robust.
Yeah. Yeah, thank you. So, our business model is to speed up innovation, help our customers in the human Nutrition space, get to market faster. That value proposition continues to resonate, and we continue to win, and we check that. We check the percentage of wins we have every year in terms of our pipeline, and also the health of our pipeline, the NPV of that pipeline going forward. So we know that. Of course, that is on a background of the demand for the application. So flavors, as you said, is doing very, very well. It's driven a lot by the vitality of beverage. The beverage industry reacts faster, it takes faster adjustment to a formulation, so they, they, they read the demand a little bit faster. Food takes a little bit longer.
So you see the things that go to, beverages, like, again, flavors, having better growth rate than maybe things that go to food, like plant-based proteins. So, in plant-based proteins, we are pivoting to applications that have shown more resilience, dairy alternatives, sports Nutrition, things like snacks, so we're pivoting into that. And of course, we have adjusted our growth plans and our CapEx to, to make sure, the supply matches demand. I would say, I mentioned, I think at the onset, I think that pet has shown some levels of de-stocking. We have, different pet businesses around the world. We are in Mexico, we are in Brazil, we are in the U.S., we are in Europe, we are in, in Asia.
I think that, as you know, the economies are not going all in lockstep, so the U.S. consumer is still more resilient. Some of the developing economies are doing better on services, but maybe not on products. China is slow getting out of COVID, maybe Europe is a little bit, you know, subdued growth. So we see the same things, I would say, and we're seeing some trading down in that category. So, it's difficult to know because it has extended a little bit longer than expected. So I think that a lot of the improvements that we're seeing right now in Nutrition is more self-help than market driven. Maybe market driven start to happen later in 2024, but it's difficult to call out.
Thanks for that. Maybe just switching on to the animal side, you did reference the pet, but-
Yeah.
I think, in that business, maybe more of the focus is on margin right now than as much on top line-
Mm-hmm.
Just given what we're seeing in some end markets, and obviously, the amino acid side. So maybe give an overview of some of the actions you're taking to kind of get that margin after some erosion in recent quarters to start inflecting back higher, 'cause I think that is a longer term, you see quite a bit of opportunity there.
Yes. So there are two pieces, if you will, of the Nutrition business, a piece that is a little bit more commodity and a piece that is a little bit more specialty. So, the commodity piece of animal Nutrition benefited during COVID, and margins were better. As COVID subsided, some of the Chinese producers, especially of amino acids, came back to market, and that has an effect on the commodity side of that. The specialty side always take a little bit longer, and again, during COVID, the margin for our protein customers were exceptionally good. So people was less concerned about developing innovation because they were just, you know, by being allowed to produce, it was just good enough. So now I think all those things are reversing.
So commodity side came down a little bit, and we started to see more traction in the innovation side. So that is good. So what have we done to bridge all that, all that transition? Because sometimes prices come down in commodities on the elevator, and innovation goes down, you know, a little bit on the escalator on the stairs, so it takes a little longer. So we have shut down 9 lines around the world, and we have many lines, so 9, you know, don't, don't be alarmed. We have more than 50 or something. We have to, unfortunately, let go some employees, so about 800 people, we have trim our forces. We have aligned some of these products.
We have resourced more the specialties, because innovation is happening more often, and we have seen we've seen that in the pipeline. And we also are experimenting on the some of the commodity businesses have more of a localized dynamics, business dynamics, if you will. And so, that, to a certain degree, aligns better with the commodity part of our business. So, we are running experiments, like in Brazil, in which we have some of the commodity part of animal Nutrition being run by Ag Services and Oilseeds. And I think that, that, that seems to be proving that maybe there's something there that we need to learn. So, many things going on at the same time, which, you know, I think we started to see the impact of that, and as I said, it's all self-help.
Our P&Ls are becoming increasingly better, but not yet from getting any market help at this point.
Thanks for that. Maybe switching over to capital allocation. M&A is a stated strategy. We haven't seen a lot of activity from you in recent years. Maybe get an update on the pipeline areas you see opportunity just from a portfolio standpoint, and what the holdup has been up to this point. Are you starting to see maybe more realistic valuations in your view?
So, yeah, M&A is the stated strategy to the extent that the Nutrition business has more like a bolt-on and bolt-on M&A and organic growth. So that has helped to cover our portfolio here and there. I think things became expensive, and I think they still are. If there is a moderation on expectations, I haven't seen them to the level that I want at this point in time. I think the last 10 years were bad for ADM from an M&A perspective, because ADM has a strong financial position and balance sheet, and to be honest, money was free over the last 10 years, so that was not a differentiator for ADM. So we tried to acquire as little as possible, and we think that now it will become more important.
Again, I have 60%-70% of my cash flow free to do that. But the point is, it needs to—I mean, we created this financial discipline. We increased ROIC from 5% to 14%. I don't want to dilute that by bad acquisition. So we will be patient. We have a strong organic growth business there that we're gonna source. In Nutrition, I'm going more for niche stuff, so we may need to complete some geographic participation. We're a great Nutrition company in North America and Europe, but maybe underrepresented in the emerging markets, and that will be a good place. I think in the commodity side will be small consolidation place. I think every large play brings a lot of impurities, things that you like to have, but a lot of stuff that you don't like.
We are very happy with our footprint in general, our representation in the world, so we don't need to add any massive stuff. But if there is something that is, you know, an opportunity that realistically makes sense, that we have enough technology, enough different way to go to market and enough talent there that we feel attracted at a reasonable valuation, we will flex our M&A capability. In the absence of that, we'll continue to buy back shares as long as we think that the intrinsic value is not reflected.
Thanks for that. We've got a little over five minutes. Maybe I'll open it up and see if anyone wants to ask anything. If not, I've got some additional ones.
Yes.
elaborated?
Yes.
Could you give a sense of where do you see this in terms of scale, in terms of how big would this be within the business, if you look 3-5 years out? I know it's relatively small if we look at the operating profit line.
Yeah. So, when we created the Nutrition business, very simplistically, I always thought when I joined the company, we had about $500 million of ethanol business and about $400 million of a trading business that I didn't understand very well, the predictability of it. So I set myself the goal, that I said, "I need to replace $1 billion of OP with profit, because that may go away at one point in time, and I cannot, you know, trust on the volatility of that." So, to a certain degree, I put that arbitrarily goal to myself. The business is something in the range of 60%, 65% on the way there, if you will. But I never gave them a target.
If I gave a target of percentage of our earnings going into Nutrition, I could achieve that by destroying our services and all, that it doesn't make a lot of sense. So at this point in time, the percentage of Nutrition the overall company is lower because, you know, the commodity business, they all found their growth rate. So I'm excited about it, so I'm not concerned. I didn't tell them also a $1 billion I wanted to be their goal because I didn't want to force them to go there by spending money wrongly, if you will. And I wanted our financial discipline to continue. So I gave them two targets. Well, you need to grow faster than the industry. And I...
Every quarter, we check them in flavors, in proteins, in texturants, in everything, how they're running versus their competitors, their peer-play competitors. And then that EBITDA margin on sales shouldn't be used to buy that growing faster than the industry. So as long as you go faster than the industry and you have a EBITDA margin on sales that is stable or growing, they, they're gonna get their bonuses, if you will. So that's the measure we have. How big can it get? It will be chunky. It will be like, at times, we're gonna have acquisitions, at times we're gonna penetrate a new geography, at times we're gonna deal with things like today, environments in which not everything is hitting in all cylinders.
And, so, you know, this is a business that customers are telling them, telling us that we're going in the right direction. So as long as the pipeline continues to look for growth, and we will continue to fund that. It's a business that requires much more imagination and OpEx than CapEx. So it's a business I don't worry that much in our ability to fund it. It's more our ability to deliver to our customers and bring the products that they're gonna need tomorrow. So that's why sometimes we go into bolt-on, because sometimes you're like, okay, you have a great fiber, but you don't have every fiber, and maybe the world is going into that fiber.
It's a little bit more niche and more boutique in that sense, but it leverages a lot. We will not be a big player in texturants, we will not be in corn. We will not be having a big fiber portfolio, had it not been for the corn business. We will not be in proteins, had it not been for the oilseed business. And then more and more now, the fact that regen ag brings attributes to our products across the chain. Originally, we were, like, the only one that have all these proteins. Then it became like, we are the only one that can formulate these proteins, and we have protein plus flavors. Then it became like, okay, people have that. Well, we're the only one that can formulate systems. Now we can add probiotic to those systems.
Now I can add regen ag accreditation to those products. So more and more, my point is, I want to continue to drive the competitive standard and make things more difficult for people to follow ADM. So if you were ever a plant-based protein and you said, "Okay, I match ADM because I buy now a flavor company," okay, good luck buying a grain company now to provide regen agriculture credentials to your product or whatever. So my point is, I will always try to increase the standard to make more difficult ADM to be followed.
Well, I don't know if this is a two-minute question, but I'll try.
There are two things that they ask me all the time, my Financial Advisor, "When will I die? When will I retire?" I haven't been able to answer either, so hopefully this is a different one.
No, so, so I wanted to ask on kind of the nearer-term environment as we look out. I mean, we've seen very strong crush margins in the U.S. Obviously, origination in South America has been quite favorable. Maybe crush margins in some other parts of the world have been, a bit more mixed. I mean, what is really driving that North America strength relative to other parts of the world, and how do you see that evolving in the coming year?
Hmm, good question. So, when we started the year, we started the year with high crush margins, and then by the second quarter, everybody started to worry about because crush margins softened a little bit. And it was a little bit expected, because that's when Brazil and Argentina, even Argentina, with a small crop, start producing, and they sell Soybean meal to the world, so that's their time to export. So your crush margins in the U.S.. I say crush margins, we are bigger crusher in the U.S. than other companies, so for me, U.S. is bigger.
So went down a little bit, and then at that point in time, we said, "Don't worry, because it will come back up in the third quarter." Also, at that point in time, I think that we got a little bit of a delay in some of the plant for renewable green diesel, so the offtake of oil became a little bit lower. Now we're going into third quarter, and, you know, crush margins are stratospheric again, which is what we said, they were going to go higher. And it's basically not happening with synchronicity around the world. So as you said, maybe Europe is at still f or example, crush margins in Europe are not great for Soybean because there is a lot of Soybean meal exported from Brazil to Europe, but it is great in rapeseed.
So we have shifted all our capacity, switch capacity to rape. In Brazil, for example, the still domestic market crush, you know, is probably $40 per ton, while the U.S. is $100, but export markets, it's more like $10. And you say: Okay, why the U.S. is so much better? 'Cause the U.S., to a certain degree, became a little bit of an island. Maybe tropical oils are a little bit softer around the world, but in the U.S., we have the domestic demand for RD, and we have also the export demand, not only domestically for Soybean Meal, but also we export because we need to replace Argentina, that is already running out of meal. So Argentina is gonna be running crush capacity at 30% soon and maybe 10% by December.
So all of a sudden, the U.S. becomes the only game in town. So we're gonna see that dynamic, but I think we need to get used to that. The U.S. will have these two supported legs. We will continue to do Soybean meal domestically and big play for export, and we will have this pull on Soybean Oil, so that will be the reality for quite a while.
Well, thank you for coming and joining us today.
Thank.
And all your insights. Thank you very much.
Thank you, Tom.