Good morning, ladies and gentlemen, and welcome to The Andersons 2022 first quarter earnings conference call. My name is Matthew, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. Later, we will facilitate a question-and-answer session. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. As a reminder, this conference is being recorded for replay purposes. I will now hand the presentation over to your host today, Mr. Michael Hoelter, Vice President, Corporate Controller and Investor Relations. Please proceed.
Thanks, Matthew. Good morning, everyone, and thank you for joining us for The Andersons' first quarter 2022 earnings call. If you're viewing this presentation via our webcast, the slides and commentary will be in sync. This webcast is being recorded and the recording and the supporting slides will be available on andersonsinc.com shortly. Please direct your attention to the disclosure statement on slide two of the presentation, as well as the disclaimers in the press release related to forward-looking statements. Certain information discussed today constitutes forward-looking statements that reflect the company's current views with respect to future events, financial performance and industry conditions. Forward-looking statements are subject to various risks and uncertainties. Actual results.
Pardon me, ladies and gentlemen. It appears that we are having connection issues to our speaker line. Please stand by as we troubleshoot. Thank you. Pardon me, ladies and gentlemen. It appears that we have reconnected our speaker line. Mr. Hoelter, please proceed with your conference.
Thanks, Matt. I apologize for the technical difficulty experienced. We're gonna just start over from the beginning. Thank you for joining us for the Andersons first quarter 2022 earnings call. We have provided a slide presentation that will enhance today's discussion. If you are viewing this presentation via our webcast, the slides and commentary will be in sync. This webcast is being recorded, and the recording and the supporting slides will be made available on the investor's page of our website at andersonsinc.com shortly. Please direct your attention to the disclosure statement on slide two of the presentation, as well as the disclaimers in the press release related to forward-looking statements. Certain information discussed today constitutes forward-looking statements that reflect the company's current views with respect to future events, financial performance, and industry conditions. These forward-looking statements are subject to various risks and uncertainties.
Actual results could differ materially as a result of many factors, which are described in the company's reports on file with the SEC. We encourage you to review these factors. This presentation and today's prepared remarks contain non-GAAP financial measures. Reconciliations of non-GAAP measures to the most directly comparable GAAP financial measure are included within the appendix of this presentation. On the call with me today are Pat Bowe, President and Chief Executive Officer, and Brian Valentine, Executive Vice President and Chief Financial Officer. After our prepared remarks, we will be happy to take your questions. I will now turn the call over to Pat.
Thank you, Mike, and good morning, everyone. Thank you for joining our call this morning to review our first quarter results. We're saddened by the news and images coming from the war zone, and our thoughts and prayers remain with the people of Ukraine and those who have family impacted by this unfortunate conflict. Global ag markets in the first quarter were significantly impacted by the war in Ukraine. We saw an extreme run-up in grain futures prices, which also drove basis values lower. Global fertilizer supplies remain tight, with prices up further due to the conflict in Ukraine. I'm very proud of our team for managing through these resulting unprecedented price volatility and logistical challenges while maintaining focus on serving our customers. Our trade group results declined from last year, in large part due to the decline in corn and soybean basis values.
While our inventories needed to be reduced to mark-to-market these lower basis values, we want to note that this pricing environment has allowed our teams to enter into new ownership positions at improved basis values. This, we believe, will position us well for the remainder of this year and into 2023, as these are historically good ownership values. Last year, we accumulated solid wheat positions in our Midwest grain assets and expect it will provide storage income moving forward. Growth in our international supply chain business contributed to our results in spite of the impact of Ukraine war on supply and logistics. Our renewables segment performed well in the quarter. Ethanol Board Crush margins were improved from the first quarter of last year, and higher commodity prices kept feed and corn oil values high.
Third-party merchandising of low CI renewable feedstocks and other co-products was up significantly from the first quarter of 2021 as that business continues to grow. Our results also include an $8.3 million mark-to-market hedge loss, most of which is expected to reverse in the second quarter. We've now completed our spring maintenance shutdowns on all of our five ethanol facilities, and we're well-positioned to meet the seasonal increase in driving demand. Plant nutrient reported a record first quarter. Our strong results reflect well-positioned inventory in this much higher-priced and limited supply market. Improved margins more than offset lower volumes across most product lines. I also wanted to provide a brief update on the divestiture of our rail repair business. You may have seen our announcement last night on the sale of this business to Cathcart.
With this transaction expecting to close this summer, it will finalize our previously announced strategic exit from the rail segment, with the larger rail leasing business sale closing back in August. I'm now going to turn things over to Brian to cover some key financial data. When he's finished, I'll be back to discuss our outlook for the balance of 2022. Brian?
Thanks, Pat, and good morning, everyone. We're now turning to our first quarter results on slide number five. In the first quarter of 2022, the company reported net income attributable to The Andersons from continuing operations of $6.1 million or $0.18 per diluted share. This compares to $12 million or $0.36 per diluted share in the first quarter of 2021. As Pat mentioned, plant nutrient and renewables had strong first quarter results, offset by a decline in the trade group's year-over-year results. EBITDA for the first quarter of 2022 was $55.8 million compared to adjusted EBITDA of $63.2 million in the first quarter of 2021. Both of these measures exclude discontinued operations.
We recorded taxes for the quarter at an effective rate of 38.7%, which reflects the impact of non-deductible mark-to-market losses and the tax treatment of non-controlling interests. While this rate is higher this quarter, we are still forecasting a full year effective tax rate between 22% and 25%. Next, we'll move to slide six to discuss cash, liquidity, and debt. We generated quarterly cash flow from operations before changes in working capital of $40 million in 2022, compared to $89 million in 2021. The majority of the difference relates to the timing of tax refunds and credits. Futures price inflation in the grain markets is the primary cause of our significant increase in working capital and related short-term borrowing levels.
The short-term debt balance of $1.5 billion at March 31 is supported by readily marketable inventories of $1.4 billion and cash margin deposits of $400 million. In order to manage through these rising commodity prices, we amended and extended our short-term borrowing agreements with committed capacity of $2.1 billion. We have strong support from our banks and continue to proactively monitor our liquidity. We also continue to take a disciplined approach to capital spending, which we expect to be roughly $100-$125 million for the year, about 1/2 of which we expect will be related to maintenance capital.
As we've previously noted, we have reduced long-term debt by over $300 million over the last 12 months and remain well below our stated long-term debt to EBITDA target of less than 2.5x . With this stronger balance sheet, we are well-positioned to invest in our core agricultural businesses. Now we'll move on to a review of each of our businesses, beginning with trade on slide seven. Trade reported pre-tax income of $3.7 million compared to adjusted pre-tax income of $14.3 million in the same period of 2021. The significant run-up in commodity prices resulting from the conflict in Ukraine and the smaller South American crop caused a dramatic drop in basis values, primarily in corn and soybeans.
While the lower basis values allowed us to buy new bushels at favorable basis levels, existing domestic positions experienced large basis reductions which impacted first quarter results. We also experienced a decline of approximately $4 million in our propane merchandising business. That business continues to perform well. However, the extreme cold in February of 2021 that impacted much of the Midwest and Texas allowed for very strong returns in the first quarter of last year. Trade's EBITDA for the quarter was $20.8 million compared to adjusted EBITDA of $32.5 million in the first quarter of 2021. Moving to slide eight. Renewables first quarter pre-tax income attributable to the company of $5.5 million was up $2.6 million compared to the first quarter of 2021.
While the first quarter experiences lower winter driving demand, Board Crush margins were higher than the prior period. We also continue to see strong co-product values, including high-protein feed, Distillers Corn Oil, and DDGs that contributed to increased gross profit. Third-party ethanol, feed, and renewable diesel feedstock merchandising results were more than double the 2021 results. The group's results also included mark-to-market losses of $8.3 million in the quarter, nearly all of which is expected to reverse in the second quarter. Ethanol recorded EBITDA of $24.4 million in the first quarter of 2022, an increase of 10% from the first quarter of last year. Turning to slide nine. The plant nutrient business recorded record pre-tax income of $10.7 million in the first quarter, up from $8.5 million in the first quarter of 2021.
Continuing the story from last year, well-positioned inventory led to improved margin per ton in our agricultural product lines, and in particular for our specialty liquid products. Fertilizer prices have also continued to rise due to the conflict in Ukraine. Our turf and specialty business continues to be challenged by supply chain difficulties, inflation in raw materials, and labor constraints. Plant nutrients EBITDA for the first quarter was $18.8 million, an increase from $16 million in the first quarter of 2021. With that, I'll turn things back over to Pat for some comments about our 2022 outlook.
Thanks, Brian. While our first quarter overall financial results did not meet our strong performance of 2021, we continue to believe that our agricultural business outlook remains strong. We were anticipating elevated commodity prices for some time due to the relatively low worldwide stocks. With the disruptions in the Black Sea region and the smaller South American crop, we expect demand to stay high into 2023 and beyond. Planting across the country has started slowly, and it's currently a week behind the five-year national average. It's been wet across the Midwest this week, and we do know that farmers are anxious to get into their fields as soon as they can. We expect them to ramp up activities quickly when possible. Fundamentals in the grain business continue to remain positive.
Worldwide supplies are projected to be tight into the foreseeable future, and we're very pleased with our ownership positions at good values. Storage income opportunity has returned to wheat, and we're able to accumulate large wheat inventories with the expectations for reduced supply from Ukraine. U.S. fall harvest will reduce but not eliminate the impact of strong worldwide demand on all primary crops. With these markets, and at this time of year, we're very focused on monitoring the impact of the safrinha harvest in Brazil and the planting progress and growing conditions in the U.S. As always, we're working to support our farmer customers with their grain marketing plans. In ethanol, gasoline demand has improved but has not yet returned to the pre-pandemic levels. Board Crush margins have recently moved favorably for the second and third quarters of this year.
U.S. ethanol stocks remain fairly high despite the spring shutdown season, but are expected to decline on growing seasonal, domestic, and export demand. The strong demand and good values for co-products continues to support our overall margins. In addition, our low CI renewable diesel feedstock merchandising business is performing very well and adding to our results. All five of our ethanol plants have now completed their spring shutdown successfully and are ready to meet the increased summer driving demand. Two of our facilities are operating successful high-protein feed product lines and marketing them to a wide array of customers. We expect plant nutrient to continue to perform very well through the spring planting season in an ongoing period of tight supply and high market prices. We receive good support from our North American suppliers and continue to have inventories in position for the spring application season.
We've seen a reduction in fertilizer volumes in the first quarter, but it's been more than offset by increased margins supported by high commodity prices and strong farmer income. With a positive nearby outlook for ag market fundamentals, we're excited about our prospects for growth, particularly in sustainable opportunities. We remain committed to adding value for our customers, managing risk, and operating safely and effectively. Now, I'd like to turn to slide 11 about our investment thesis. We introduced our refreshed strategy last year and are continuing to focus on both grain and fertilizer growth projects. We're mentioning this again today as we're working on our growth pipeline, which includes both organic projects as well as potential acquisitions that are within and adjacent to our current position in the U.S. ag supply chain.
Recent examples from this past year include our growing renewable diesel feedstock business, our purchase of Capstone Commodities in the dairy feed supply business, and our grain supply chain extension to Africa and the Middle East. The Andersons play a key role in the ag supply chain, servicing customers from farm to the fork. We'd like to draw your attention to our recently published 2022 sustainability review, a copy of which is on our recently refreshed website. We are firmly entrenched in the U.S. ag supply chain and see many opportunities to continue to grow. With our focus on our two trees, symbolized on this piece of paper, our strategic verticals, stronger balance sheet, sustainable cash flow, and tighter strategic focus, we expect to be able to grow profitably in this exciting ag economy.
With that, I'd like to hand the call back to Matt, and we'll be able to entertain your questions.
Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you'd like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble. Our first question will come from Ben Bienvenu with Stephens. Please go ahead.
Hey, thanks. Good morning, everybody.
Morning, Ben.
I want to start my first question on the trade business. Obviously, we had a sharply rising market. You talked about some of the basis positions that, or basis value changes that hit, your numbers in the first quarter. You characterized that as putting yourselves in a good position, relative to where prices have gone heading into the next several quarters. You know, I think this business is inherently difficult to model and track from the outside, from our seat. Can you help us think about relative to, maybe the underperformance versus what we would have expected in the first quarter?
Do you think the positions that you have in place through the next couple of quarters position you to deliver, you know, similar results to last year, make up for some of what you might have lost in the first quarter? Maybe just help us make sense of the stock is making a pretty severe reaction to the news today, really in the sense that, like, maybe the earnings power has changed all of a sudden. It doesn't seem like it has. I'm curious, could you try to dimensionalise for us, are we just on the same track and there were some short-term dynamics in the first quarter associated with the sharp move in grain markets, and what we should be thinking about as we move through the next several quarters?
Sure, Ben. That's a very good question. A lot of pieces to unpack there. First of all, yeah, I'm very surprised with the market action of this morning because we had a record quarter in our fertilizer business, a strong profitable quarter in ethanol, where others maybe didn't quite do as well in the industry. We had a very good quarter in ethanol. In grain, when you have a high flat price, commodities price spike like that, it's quite normal to see basis levels weaken. That's a bad thing where you have to mark-to-market what you own, the inventories, you reduce that and you take that mark, and we've done that. In the quarter, it's probably about $8-$10 million.
We are buying lower basis levels and have accumulated grain at historically good values. We're basis traders. The benefit of our business is to buy discounted basis levels that you can then elevate later and ship them in a rising demand market like we have this year. Others in the industry also commented, public companies, about their timing differences, or if you wanna call it basis depreciation. This is a good thing. This is an opportunity to get ownership on when futures prices spike and farmers sell and the basis weakens. That's like we're buying at a better value. We see that as a very positive strategic sign for us that will come back later this year. Now, can I guarantee the date and time and month that it's gonna happen?
No, but that's historically very good ownership for us, and we feel good about that and think that puts us in a very strong position with an export demand that's gonna be solid and domestic demand that will be solid later in the year. Another thing to think about is just some of the lapping we had last year. 2021 was our best year in 10 years, and we had some really strong performance in trade. One of them was propane. Last winter had a very high selling prices and probably were about, you know, $4 million-$5 million lower than what we had last year. Still a profitable, very good business, but not the spike it had in the first quarter last year. That was a tough match to meet from 2021.
Bottom line, we are very positive about where we're positioned in the industry. We like the tailwinds we have behind us in all of our segments. We just announced the sale of our rail shops that completed that final transaction in the rail segment. We're in very good position, strong balance sheet, and feel very good about what's in front of us. I think maybe just some overreaction this morning because of sensitivity with commodity markets.
Yeah. Okay. That makes good sense. Maybe as a follow-up. You know, the stock is now, and I know it's our job to think about what the stock is worth. It's your job to run the business and try to maximize cash flow in the business. The stock is now trading at book value, which it's really only done during the start of COVID and during the Great Recession. Your peers, public peers are trading at two times book value. You have a share repurchase program. You're generating plenty of cash. I know there's working capital demands on the business short term. When you think about rank ordering capital allocation and capital spending, how do you think about where share repurchase fits within the set of opportunities that you have?
Yeah. Ben, this is Brian. Good question, and it won't surprise you. It's something that we've been talking about ourselves this morning. You're correct. We have a program that is in place, and we obviously have, you know, closed windows and periods when we're not able to purchase and then periods when we're able to. I would say it is certainly one of the levers within our toolkit and something that we'll continue to evaluate closely.
Okay, last question for me. Ethanol margins, industry ethanol margins have improved materially kind of heading into the second quarter. Do you have the ability to, you know, lock in forward sell and secure margins? Have you done any of that? Just any color you could give us around your positioning on your ethanol business would be helpful.
Sure. We've always been hedging positions when we find opportunities to create value, have done some for the second quarter. Earlier this year, I've done some on energy, as well as corn. We're in a good position. We think that the ethanol market is gonna have a nice finish. Will the fourth quarter of this year be as strong as was in the fourth quarter of 2021? This all happens to be about driving. Like what is the conditions gonna look like for the balance of the year? We're optimistic. It feels like it's in a good position, and exports are starting to be more of a factor. Ethanol value is low and can help the economy by blending lower cost ethanol into gasoline.
We think this is a good time for ethanol to really, really shine here this year. We're well positioned. Our plants are all up from their shutdowns, and co-product values, both corn oil and feed have been very strong. We think ethanol is in a good position.
Okay, great. Thanks so much. Best of luck.
Thank you.
Our next question will come from Ken Zaslow with BMO Capital Markets. Please go ahead.
Hey, good morning, guys.
Morning, Ken.
Not to beat a dead horse, I just wanna clarify on two things. One is if you were to exclude the first quarter and you were to kind of go back to, you know, three months ago when you provided some sort of outlook for 2022, would you think you know, the next three quarters would be any different based on what happened in this quarter?
No, I don't think so, Ken. Maybe a little bit better because of the grain ownership we have and some of the carries that are coming into the wheat market, so that could pick up a little bit. You know, I hate this time of the year because we haven't planted corn in the ground and we're, you know, this is such an important time for the U.S. crop to guess what the fall harvest would be. In general, we feel pretty good about all of our positions and where we're at in the market. I would say yes, I think those levels are a little higher.
Okay. Just continue on this. You said you compared yourself to the other companies out there that talk about mark-to-market. Is this a non-cash item that happened or is it a cash item? I just wanna, you know, 'cause I think, or am I misunderstanding what you were implying between you and your peers?
Yeah, just all grain merchants, you know, adjust as the basis levels move. Once you're hedged, you're locked in on futures, and then as the basis goes lower at the end of a month, we bring the month down to that new basis level. The grain we own, we had to mark down, and then when it goes back up, we mark it back up when we elevate it and ship it. I shouldn't talk about other companies, but other companies mentioned that in their public releases about timing differences related to that. This is normal in soybean crush businesses or grain elevation businesses. It's actually a good thing. We look for times where futures markets spike and then the basis weakens and you can accumulate at lower basis levels.
We think that's a very good thing. Unfortunately, it causes a timing issue the month it happens.
It is a cash or non-cash item? I guess that's. You're comparing it to the basis, not the mark-to-market on the crush margins. Is that making sure I'm understanding it?
Correct. We're not in the soybean business, so we don't have a crush margin.
Right.
It's your inventory you're marking to a different level on the basis each month.
Okay.
We bring that out in the quarter, quarterly results. That we feel will, you know, come back as we ship those products at higher basis levels later.
Okay. In terms of-
To your point on the ethanol one, that is a non-cash mark-to-market of those positions that we expect over years.
Okay.
Yeah, ethanol is separate, yeah.
Yep. Okay. The last part of my question is, when I think about obviously the tragedy of Ukraine and Russia and, you know, you don't ever wanna, you know, benefit from it in this quarter, obviously you didn't. You know, for the next, you know, year to two years, if it extends the ag cycle, how does it play out through your results and how do you navigate and potentially elevate your earnings power from this? Do I think of it more as more transitory that, you know, you have these good things and bad things that happen? Is it more about, you know, a sustainable level of earnings?
No, I think it is a sustainable level of earnings. If anything, it's probably extended it. It's about a time issue. Before, without any, you know, political disruption, maybe we could have Mother Nature come back and Brazil has a better crop next year and we have a better crop next year. In one to two years, you could have gotten to more normal balance in S&D. Now the supply and demand of global grains is out of balance and very tight and likely to extend past two crop years. This let's call it rally that's happening in the ag markets is likely continue longer, being a demand-driven rally because of short supplies in other places of the world. Very good prices for our U.S. farmers, incentives for farmers globally to plant.
We should have volumes that ag companies can ship. With the economy where it is, even with higher interest rates, demand is still strong for food products and global food demand. We continue to have a very good fundamental basis across the ag sector. That should extend maybe longer because of this crisis, unfortunately, over the people in Ukraine, but it's gonna have an impact that will linger more than one year or one season.
Great. Well, just making sure I understand this. I'm sorry to just go back to this point. It just keeps on.
No.
You did not sell your grain position or you were not forced out of your grain positions, right?
No.
Just to make sure I understand that.
No, of course not.
You were set up. Okay, I just wanna make sure. I appreciate it, guys. Thank you.
No, of course not. In fact, at this time, when we've had a rise in prices on the futures markets, gives us the opportunity to accumulate grain inventories at lower basis levels. That's a fundamentally really good thing to do, and we're really pleased to do that. We have good positions of wheat that we bought last year. We're buying grain from our farmers when the market rallies, which is a good thing for us and a good thing for them. We're well-positioned to take advantage of that going forward. We like the position we're in.
Thank you, guys.
Ben, thank you.
Our next question will come from Ben Klieve with Lake Street Capital Markets. Please go ahead.
All right. Thanks for taking my questions. First, Pat, just a quick follow-up on the comments you're just making on the inventory position. Can you guys break down the inventory position, especially in the trade group, on a volume basis ending the quarter?
I'm not sure I understand your question, but we have our
The tons in storage, I mean.
Yeah. Our volume that we own is higher than last year same time of grain inventories, and we're able to have
Okay.
Purchases at this time of year that was, you know, better than previous time. That the point is back to marking basis levels down, that it's good ownership that we can turn around and elevate later. It's a good opportunity for us. That's the point.
Okay. Got it. Another question in the kind of first quarter performance within the trade group. Can you kind of characterize the performance within that group in the first part of the quarter versus the H2 of the quarter, when the you know, extreme volatility really set in? I mean, curious if you could elaborate kind of on the trajectory that you think that business would have been in, you know, in mid-February versus what the you know, how the group ended end of the quarter.
Sure. I think initially when the war broke out, there was a little bit of a shock to the grain system when wheat markets particularly spiked, and we had to get back to kind of a normal alignment. As we got through the end of the quarter, margins improved and our trading profits improved. Kind of started, I don't want to say it's normalized because it's not normal at all, but started to calm down a little bit. Also we're able to sort out shipments that were on the water or not and how those things were gonna work out logistically. We and others in the industry have been able to navigate those challenges due to the war in Ukraine, and it's actually providing the volatility that is something we like in commodity markets.
Why I mention that is, again, back to that basis levels, it gives us a chance to buy at discounted values that we wouldn't have seen otherwise. That's a very good thing for our business. That flows right through to ethanol and into our other businesses. Again, record quarter in fertilizer, good outlook in fertilizer, strong quarter with a record EBITDA in our renewables business. That included an $8.3 million mark-to-market that should come back in the next quarter. We're very optimistic about our outlook.
Got it. One other one for me and kind of related to that last comment, the outlook and the optimism that you you know are clearly communicating here. Earlier in the call, you talked about kind of the ability to potentially repeat the most recent fourth quarter performance in ethanol. There's a lot going on in that segment, and I'm wondering if you can kind of characterize your optimism into two buckets. I mean, to what degree is that optimism fueled by just kind of the general strength in the market with high value co-products with you know strong ethanol margins in the current environment versus kind of an expanded organic capacity and you know greater you know efforts on the renewable diesel side, things of that nature.
I mean, how much of that optimism is the state of the market versus your internal capabilities?
Yeah. Very good point out there that I said we had a record-setting EBITDA for the quarter. Our Q1 crush margins were better than previous year, and the margins have improved for Q2 and Q3 as we start to ramp up into spring, summer driving demand. Still, stocks are a little higher than in the market as you'd like to see them coming off the shutdown season, but export demand is strong, and looks like that's gonna perform well this year. The absolute value of ethanol as a blend for gasoline is there. Now with Biden's actions to help encourage E15 usage, that's a help. It is. That's not a, you know, home run for the business, but that's gonna help. Export demand is gonna help.
High corn oil values are gonna help, and good feed values are gonna help. In general, there's a lot of positive tailwinds in the ethanol industry. I just was pointing out the fourth quarter of 2021 had very high margins, so to lap those in the fourth quarter might be a high bar to clear. We think that ethanol margins will improve the balance of the year and have a nice earnings period for 2022.
Got it. Okay. That's all helpful commentary. I think that's a good place for me to leave it. Thanks for taking my questions. I'll get back in queue.
Thank you.
Again, if you have a question, please press star then one. Our next question will come from Eric Larson with Seaport Research Partners. Please go ahead.
Yeah, good morning, everyone. Thanks for taking my questions. You know, Pat, you talked a little bit about, we know about the shortfall in South American soybean production. Now we're starting to hear, last week or two some, and starting to see the estimates come down pretty sharply in kind of the central Brazilian safrinha growing crop areas, which will not be offset by some little bit better growing conditions in the southern part of the country. Talk about that a little bit. I don't know if people are really focused on, you know, the South American safrinha crop at this point, and looks like that could actually, you know, give us reason to think that maybe corn prices in the U.S. could go even higher. What are your thoughts on that?
Yeah. Good point, Eric, and I know you watch this closely as a farmer. The La Niña conditions cause those warmer, drier conditions, especially as you pointed out, the central Brazilian area, Mato Grosso, Goiás. In that area, I mean, I operated a plant in Uberlândia, in Minas, and that region is particularly can shift dry in a La Niña period, which is what we've seen there. Now, not a total drought, but just enough that we don't get maybe quite the finish to safrinha. People know safrinha is the little safra, the small harvest, which used to be little as the second harvest. Now it's just as big as the full harvest, so it's really important for Brazilian production.
That could be stemmed a little bit, and that bodes well for U.S. soybean exports and corn, and corn prices, as you mentioned. As you also know, Eric, we're a little bit wet with this recent rains across the Midwest. On Monday, the crop report would be a week behind normal. We'll probably not recover much because it's wet week, maybe get to 25% behind by next week. But as you well know, American farmer is amazing, and they can plant corn really fast. It's too early to hit the panic button. It's likely that corn will get in as soon as we get a dry patch. It'll be nice to see good field progress for corn planting. I think that's a key thing that the market is looking for now.
It's favorable to the U.S., as you said, and now we just need to get the crop in the ground and make a good U.S. production.
We've, you know, we've obviously seen a huge increase in not only futures values, but cash values for global crops. Are you seeing any signs of demand weakness? I mean, there's a few things that we're seeing, but it seems to be pretty minor. Maybe a little bit from bird flu, a little.
Yeah.
Maybe 25-30 million bushels or something.
Yeah.
It seems like the demand, the slower demand is minimal. You know, talk to me about are you seeing any demand issues yet?
No. I think the big disruption a lot is related to the Black Sea, right? Countries that would normally be getting shipments from Ukraine or in some cases from Russia, these paths have changed. I mean, even right away when wheat is coming out of the PNW to go to other parts of the world it wouldn't normally go to, we're seeing different traffic patterns. Also remember, that's on top of high ocean freight, already. The global prices, unfortunately, the poorest people on the planet are gonna be paying food inflation, especially in Africa. What we do see is we haven't turned off demand, because protein markets are strong, crush margins are very good, ethanol markets, margins are there, and then your beef, pork, chicken demand by consumers is still solid in North America.
North American demand for feeding and for processing is still very good. I mean, wheat milling was up 2% in the quarter. There, there's good consistent demand domestically here. Now you add on top of it these pockets of shortfall that Ukraine would normally fulfill. That's disrupting the normal shipment patterns of exports, and the U.S. is gonna, you know, take part in that. China's been a little bit quiet here of late, but we still see China being a very significant buyer of U.S. commodities.
Just one more demand question. We obviously have, you know, substantially higher fuel prices going into this summer versus last. I know that a lot of people had transitioned to RV travel, summer travel, kind of really heavy gas usage, you know, type vehicles. You know, do you think that there's, you know, that demand could actually soften for gasoline demand this summer? And if so, would ethanol, the export side of it be strong enough to maybe offset some domestic softness if gas prices are too high?
Yeah. That's the million-dollar question that we don't know. I mean, will someone take an RV trip across the country? It's probably cheaper than flying to, you know, Australia or something. I think the question is, those numbers have shown improvement in recreational road travel, over-the-road travel. What hasn't returned to pre-pandemic levels is the commute levels of people going back to work full-time in offices. Is that gonna start to pick up more as the COVID concerns ease? 'Cause that's the biggest force of driving demand usage, is commuting. Summer, we think we'll see the recreational travel. You're seeing a return in aviation fuel travel. Demand on that side should be pretty good unless gas prices really go back up again really strong. That could mute demand.
We should see a pretty good demand just from driving miles. On your question of ethanol exports, we see will be higher this year. We're the lowest price oxygenate on the planet. We have good opportunities to export ethanol as an industry, and we think exports will be up. Again, how much that will be depending on demand in some of those countries and what happens with ocean freight, et cetera. Outlook for ethanol looks to be pretty good. Like I said, I cautioned about will it be as great as the margins really peaked in fourth quarter. That would be a high bar, but if we got there, we'd all be very happy.
Okay. Thanks, Pat. The final question I have is really for Brian. You guys were pretty aggressive in putting grain positions on in the first quarter, which makes a lot of sense to me. What I'm seeing does make, you know, great sense in terms of your, you know, the futures, you know, basis values that you can actually pull out of your trading business. When you look at your balance sheet, if you saw other opportunities in the market today, how much further could you bring up your short-term. I mean, how much upside do you have to take advantage of market opportunities with your balance sheet?
Well, I mean, as we sit today, we have about a half a billion dollars of available liquidity. You know, it, as you saw, we amended and extended our credit agreements in the first quarter. We continue to have really strong support from our bank group and our relationships because candidly, to your point, Eric, they understand the key role that The Andersons plays in the North American ag supply chain and really that key function. Back to the whole point on readily marketable inventories and, you know, some of those margin calls, a lot of that is can be temporary and timing differences.
I think you also know we tend to see, you know, sort of our peak borrowing in, you know, first, second quarters, and then it'll start to taper as we get closer to harvest. I would say we feel good about our position to capitalize on opportunities as they're presented.
We're feeling really good about having our real strong balance sheet, not just to deal with short-term borrowing, but also be in position for the growth projects that we're working on. I think it's Eric, you've been around about as long as I have, and if you think about corn futures trading above $8, this only happened 42 days in the long history of trading at the Board of Trade. The last time that happened was around Fourth of July. You'll remember back in 2012 during the middle of a severe drought, and when it traded there numerous times. When I started in the 1980s, corn was $1.75 and under loan and didn't move a dime all year. This is unprecedented to have these elevated prices for a long period of time. It's great for our growers and good for our industry.
We're there as the U.S. to supply these shortfalls in the global market. This is a really good time for U.S. agriculture to kind of spread its wings and show what we can do. It's a great time for our industry. Although it's volatile and prices are high, this is a really good thing.
Yeah. Well, corn prices fell below $3 just not too long ago. You know, you talk about $1.75. We've had some pretty weak corn prices in the last couple of years too. This is very volatile stuff.
Encourage that you get your crops planted in Wisconsin and Minnesota, Eric. That'll make us happy.
We haven't put a seed in the ground yet. Thanks, guys.
Yeah. Thank you, Eric.
This concludes our question and answer session. I would like to turn the conference back over to Mr. Michael Hoelter for any closing remarks.
Thanks, Matthew. We wanna thank you all for joining us this morning. Our next earnings conference call is scheduled for Wednesday, August 3, 2022 at 11:00 AM Eastern Daylight Time, when we will review our second quarter results. As always, thank you for your interest in The Andersons, and we look forward to speaking with you again soon.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.