All right. Next up, we are fortunate enough to have with us today, Darling—excuse me, Darling Ingredients. Representing Darling today, we have CEO Randall Stuewe. Ran—excuse me, Randall joined Darling in 2003 as Chief Executive Officer. Darling is based in Irving, Texas, is a global sustainable feed, fuel, and food producer. Darling has 116 million shares outstanding, trades around $63 for a $10 billion market cap and about $4 billion of net debt. Let's welcome Randy up here today. Thank you, Randy, for coming. Oh, I'm sorry. We have Brad—Brad, CFO Brad Phillips as well. I apologize. Welcome, Brad. Thanks for being here today, gentlemen. You know, let's just start off with all the interesting stuff going on at Darling, particularly on Diamond Green Diesel. Can you tell us—just give us an update on what's going on there?
There's a lot of movement. And why has that business just been so wildly successful?
Yeah. It's, first off, Tony, thanks for having us, and great questions yesterday. I think we ended up with like 400 people in our earnings call yesterday, so, hour and a half, a little wore out yet this morning. But, you know, it's been fun for me to listen to several of the other CEOs and presenters here because it's like, you know, it—I thought just looking in the mirror, I'm like listening to our business in a different way, shape, and form, and for, you know, those that don't know what we do, we repurpose or process about 15%-17% of the world's slaughtered animal byproducts.
So if you put it into numbers, about one out of every six or seven animals in the world, after you take the chicken and the steak and the—and the pork chop off, we get the rest. And then what we do with it is turn it into various different value-added products around the world. And I don't know, 23 countries now, 280 factories, and 16,000 employees, and I think the 10th largest trucking company might be in the world now. So, and what Tony's asking about is we went down a road, believe it or not, here it'll be July, it'll be 10 years of operations, 12 years of dreaming, 12 years ago of betting my career on serial number 01. And we decided to make a green hydrocarbon.
And the world, you know, the climate change was really not in the narrative at that time. It's really wild to think about how accelerated decarbonization has become. And we were just looking for a way to do something different with animal fat. And, you know, I know you say the word animal fats, and I see some gray hair in here. You remember when McDonald's French fries tasted good? But now, I mean, and then grandma used to make lard pies at, you know, in the crust and that. But the rest of the stuff, you know, you basically just had to give away. It, palm oil took over the chemical industry. Soybean oil, canola oil, sun oil, corn oil took over the edible fats business around the world. And so basically we possessed a calorie that nobody wanted.
And it was interesting back in the last energy run-up, I think, and I'm an old guy now, 2008, 2010, somewhere in there when natural gas went to $13 and T. Boone tried to convince me to convert my fleet over to CNG. And, you know, why would I do that at $13? As we were looking at this thing and said, "What else can we do with this stuff?" And so we were brought a technology that seems, for any petroleum people listening, you know, it's just like kindergarten to them. But you just crack the molecule, get rid of the oxygen, the water, and you got a hydrocarbon.
We're like, "Oh, wow, this is kind of cool." But if you've ever had the honor to either drive by or tour one of my factories, you would know that it's a hunk of carbon steel. And so you know, this is where I get to tell you all that you're like honorary renderers today because if you've ever cooked bacon or sausage or hamburger in a skillet, what have you done? First thing you did, you transported it from the store. So we transport it to a plant. You kind of get rid of the packaging. You put it in the vessel or the skillet. You flash off the moisture. And then you separate the fat from the protein. That's all we do globally. I mean, and it's just that simple in the world today.
And so we've now taken, 10 years later, we created serial number 01 of a technology married up to some fairly sophisticated, what I call I'm gonna call it refining technology that removes, you know, alkaline metals and impurities and nitrogen for catalyst life and yield success. But, you know, it's 10 years later, Diamond Green Diesel today, we, you know, and this is kind of for the guys that were hauling, you know, garbage or recyclables in here today. If you think about it, today in North America, we process two out of every three pounds of waste fat available. And that's, you know, that's a business that has evolved over the last 10 years. We turn it into a green hydrocarbon, basically diesel fuel. It's transported all over the world. Probably about half to two-thirds stays in North America.
The rest goes around the world. The decarbonization blending programs of the world are slightly more aggressive than here today. You know, they've lived within higher energy prices around the world more so than we have in America for a lot of years. Then, phase II, Tony, is we're just getting ready to. It's under construction. We're gonna make jet fuel. You know, if you. I don't know, you know, that that's a big leap, you know, when you think about the reliability of a, you know, I think they told me the other day, I get to call it, you know, SAF, but it's really isoparaffinic with synthesized paraffinic kerosene, you know. I don't know. I'm going, "Well, if I can't spell it, I guess that's okay." No, that's where we're at today.
1.2 billion gallons, maybe a little more. It's an interesting project. It's been profitable since month one 10 years ago. It's showing cash returns of about 37%. So it's been a really fabulous way of upgrading something and creating a model now for us in our base business where we were basically subject to any type of commodity swing in the world that was, you know, whether energy was down or whether palm oil production was up. We just would get whipsawed by it. Now it's just really helped the model out.
You know, you just got into my next question about just the complete business and how it's tempered, stabilized your business. But how does the complete business help you compete against—I mean, you know, it's obviously a very hot space to be in right now. You were the first. And having that essentially the whole, the being fully vertically integrated, how does that, what's the competitive advantage there compared to your, you know, who you compete against?
Yeah. You know, it's trying to stay away from those giant cliché words of vertical and circular economy and sustainable.
Yeah. Especially now, don't say that.
I mean, you know, really at the end of the day, you know, we—and for the history of it, when we found the technology, it's very much high temperature pressure and catalytic conversion, very, like I said, amateur to petroleum guys. But it had never been done on a commercial scale, using a lipid or a triglyceride because, you know, much as you can talk sweet crude, sour crude, West Texas, Brent, these guys all know the traits of the fossil input. But chicken fat's different from beef fat, from dead beef fat, from dead chicken fat, from pork fat, from fish fat everywhere in the world. And every plant's different, and it contains a different level of nitrogen, metals, and impurities. And so the technology underneath this seems simple.
But I think we, you know, and this is where we try to remain humble and true to our roots. The new capacity that's being either contemplated or trying to run out there really doesn't have, hadn't figured it out yet. I mean, they will. I mean, everybody's smart, so they will. But the moat around the business that we build is very deep and wide. And it's, while it seems like you're making just a fungible commodity that loads, you know, 50,000 barrels on a ship, you know, at the end of the day, you're really building a model that's number one, vertically integrated.
I mean, if you, there are very few businesses in the world that can say, "We go straight from the farm to the, to the food to the fuel." And, and that's what we do. What kind of competitive advantage does that get you? I think it's rather large because, you know, if you say, "What's the, what's the IP underneath this thing?" The IP is knowing every fat supplier in the world and whether you can get a yield out of it. If you think of it this way, it takes less hydrogen if the fat's more saturated, kind of makes sense, right? than it does to run liquid soybean oil. So you're gonna have a lower cost, right? And then, then it comes down to catalyst life.
When we first started the process 10 years ago, you know, that one-year anniversary of that catalyst was like the holy grail of the, you know, finish of the marathon. And we're stretching that out to 13 to 16 to 18 months now. And that's really, when you start thinking of it, it's a giant deal. And then you start looking at yield. You know, when we started out 10 years ago, you were gonna use almost, you know, nine and a half, 10 pounds of fat to make, you know, one gallon of fuel. And that's come in about 20%. And so what that means is about another $300-$400 million potentially of earnings each year.
The one that's really fascinating to us, you know, if you say, "How do you think about Darling?" You never wanna find yourself in today's narrative comparing yourself with a petroleum company. But, you know, we're the Exxon Mobil of the world today. We control the oil field, one out of every six animals of what's considered the low carbon, most low carbon intensity feedstock in the world today. So it's just been a great run. You know, we see it as not stopping. Yesterday we got asked about number four, and I about had a heart attack. The fourth plant, each one of these plants is about $2 billion and takes about three years to build. Maybe it's on the horizon.
Yeah. You have a lot of fans wanting a lot more.
More.
Or DGD 4, 5.
My father used to say, "If a little does a little good, a lot'll do a lot of good." Don't always believe that.
I mean, I will. So far, so good.
Yeah.
I have to reiterate the point. I remember going. I take a lot of pride in this. I got to go down to DGD one opening. I remember you standing there and, you know, we looked at. You pulled out some type of catalyst out of one of the tanks. And this is our system, this is our process. It works for everybody else. But you said, "That's not the skill set. That's not the moat." And you pointed to the line of trains that were coming up. And it was all of your input. And, you know, there's just nobody else that had, and that really stuck with me. I remember thinking that, so it's a great point. Maybe you could discuss a little bit more.
You just said that, but you being, you know, like on the call yesterday, you talked about being a margin manager. And, you know, you sort of, on the call, talked about lower input costs are gonna help offset, you know, any declines on the other business within the margin on the D, on Diamond Green Diesel. Could you sort of discuss the dynamics there?
Yeah. I think when the dream was, kind of executed on 10 years ago, the goal was to balance the Darling system. And the concept was, well, I wanted to own the animal feed arbitrage to fuel. And knowing that, and if you think, "What, what's animal feed?" Animal feed is basically soybeans and corn in the world. And if the world grows more, prices go down. If the world grows less, prices go up. I mean, it's fungible and as volatile as commodity as there is in the world. And, you know, the model that Brad and I built just no matter how we did procurement, we couldn't offset all that risk.
And so as we went down this road, we said, "Well, let's build out a system." So the first plant was 10,000 barrels a day, used about 11% of North America's waste fats. It could use, we could supply basically 100% of that. Well, the margins for year one through five were, and I won't talk per barrel, I'll talk per gallon, were $1.26. We built number two, took us up to 750 million gallons. Now that is roughly 6 billion or 45% of the North American fat. That tapped us out. We were done. Our model was balanced. And so when the investment team and my chief strategy officer says, "We wanna build number three," I'm grabbing my heart going, "Oh no, here we go again.
We're gonna have to go out and we're gonna be no different than anybody." But we operate on five continents. We have access to, you know, lots of different streams of fat around the world. And, you know, we were telling on the call yesterday, we felt very nervous about a year and a half ago that we would be able to provide adequate input to number three. And number three is a plant, that's listed at 30, I don't know, 5,000 barrels a day, roughly 500 million gallons. And if you think about it, at eight and a half pounds a gallon, you know, whatever that is, four and a half billion pounds of fat, which is, I don't know, 25% of the North America.
You know, so at the end of the day, it's become a real fascinating challenge. One of the things you highlighted before, we struggled. When I say we struggled, we struggled not in the factory, but in the logistics to move this. You think of a petroleum refinery. They get 100,000 barrels in either pipeline or via some vessel. We get a 190,000-pound rail car. If that rail car comes out of Omaha, Nebraska in January, it's a block of lard. You know, it has to be de-thawed or steamed, and that just takes time. In order to stay even in Port Arthur, we have to unload right at 75 rail cars a day.
We've become one of the biggest burden loads on the railroads out there. And it just takes a long time to get up the curve here. We're there. But it's just fascinating to look. And the other optic I always give people is 30% of the cost, the capital cost of this business, is really just the petroleum unit. The other 70% is what are you cracking? You're cracking a lipid. What are you producing? Water. Petroleum refineries aren't used to handling water. So now you gotta have a fats, oils, and grease wastewater unit. And then you've gotta unload it, store it, ship it, all this stuff. So you know, we look at the rest of the world and while they know how to crack the molecule, there isn't a lot of technology there to be efficient at.
It's very different. We fundamentally believe our Gulf Coast advantage is somewhere between labor, hydrogen, capital, know-how, I don't know, $0.75-$1 a gallon advantage. So it's, we've proven it.
And then you talked about SAF a little earlier. What does that mean, I mean, and you're talking about maybe adding on one or two. What does that market size look like? I follow the commercial aerospace industry as well, and they all talk about it, these net zero 2050 goals, targets. I mean, I see that I don't think anyone sees how they're gonna get there. And it seems like maybe the only, you know, really functional way is through SAF. Can you maybe just talk a little bit more about that?
Yeah. You know, and I always like to start with, I'm okay plugging in a truck or a car. I'm not ready to plug in an airplane. So, you know, they have very limited options. They're very savvy operators around the world. They clearly have helped out in the legislation in what's called the Inflation Reduction Act. And they, you know, supported a subsidy or two to kind of incent construction of the industry. And at the end of the day, we've seen the airlines, many of them, and the cargo carriers. I mean, it is, I guess I'm gonna get in trouble, but that's everybody knows Randy knows he's not scared of that here. It's the greatest case of greenwashing I've ever seen. And I'll give you an example.
Southwest Airlines, God bless, home of Dallas, across the street from us, 2 billion gallons. They've signed 600 million gallons of SAF non-binding MOUs. Their hopes are that none of this will be made so they can just buy carbon credits. We're gonna call the bluff here. We got 250-300 million gallons coming on here in about a year. And I think it's gonna be one of the greatest opportunities. We're already seeing margin interest that's, you know, anywhere $0.75-$1 a gallon above what we're doing in renewable diesel and road fuel today. So it's very, very exciting. So how big's the market? 50 billion gallons between North America and the continent and Europe. People are becoming realistic now and saying, "Well, maybe a 2%-3% blend." That's still huge. Boeing's running experiments right now at 30%-30%.
I'll give you another example. The United Airlines CEO, Suann had me participate in the White House roundtable and announcement when, you know, Secretary of Transportation Buttigieg kicked this off. And the United CEO gets up and says, "We're gonna buy a billion and a half gallons of, of, sustainable aviation fuel." And I go, "Wow, that's a big number." Did you know he's just gonna buy every pound of fat, of soybean oil in the domestic market to feed people in the United States? He has no idea what he just said. And, and so, you know, I'm just gonna tell you, you better go stock up on ranch dressing and Thousand Island if, if this guy's really gonna deliver on his promise. It, it just can't happen.
So, yeah, I mean, I think Suann told me the other day, we totaled up all of their non-binding MOUs, 11 billion gallons times eight and a half pounds a gallon. I don't know. I can't even do the math. It's five times the size of the U.S. soybean crop. So you kinda have to put it in reality. It's not to, if you will, not to buzz kill people on the opportunity. It is to say that clearly someone's gonna move. We were talking to people a year and a half ago before we made, you know, I, I'll just say it out loud. I mean, Amazon will buy every gallon. You know, they have a real commitment. But they said, "Oh, we just wanna buy it at Jet A." Jet A today, at least in Dallas, Texas, is about $4 a gallon. SAF is $9.
When it's 20% of your cost, variable cost component, that's a big number. And so I think the cargo carriers are gonna move. I think you're gonna see the fixed base operators, the Signature Aviation, the shelters move. But we see the marketplace is anywhere from 2-5 billion gallons over the next 3-5 years. You know, we were talking yesterday, it wouldn't surprise me to see every gallon that we make outside of Beaumont, Texas, on the Gulf Coast, it's called Port Arthur, go to Europe. It may or may not. I mean, Europe clearly has a, I don't know. Their motivation's higher than ours is here, and if you think about it, there's no mandate yet in the U.S., so you're making an economic decision for your consumer.
When we asked one of the airlines about how many of their consumers pay for that offset or whatever, that clean fuel offset that you can check that box, less than half of 1%. So it's gonna be an interesting market develop. I mean, I think you'll see the cargo carriers at least move a portion there first just so they can say that they're doing it. I think the passenger carriers, much like if you walk up and down Fifth Avenue and you see that little sign called LEED Certified, you know, they built a green building. I think you'll see a sticker on an airplane that says, "Yeah, SAF fueled," but they won't tell you it's, you know, 2%. So.
Yeah. Got it. Well, it's, that's where it's going. And you're there. Maybe switching over to the other pieces of your business, the feed side. Could you discuss maybe the size of that market domestically, internationally, and where you're seeing the sort of supply and demand balance and where is that looking to go?
Yeah. I mean, clearly over the last three to five years, there's just been a massive expansion of animal agriculture around the world. I mean, it's pretty easy to get your mind around it as wealth is created, as there's more population. People wanna eat better and they want nicer, closer to work, a better neighborhood and better schools. But food really kind of fuels that whole, you know, circularity that's there. And so we've seen massive expansion around the world. And it's also been driven by China's inability to manage disease. And while you may have a central planned economy or government in the CCP, by the time they get down to the province, to the city, they've not figured out how to eradicate or become "biosecure." And I know that's kind of a buzzword. What's it mean?
Two out of every three animals is raised in the backyard. You're not gonna eradicate animal disease. In Europe today, if an animal dies, you have 24 hours to dispose of it through a licensed rendering company, which would be us. And they have to pay us to take it away. In China, the dead animals just get thrown in the backyard or slaughtered. In many cases, you've heard of African Swine Fever. It has wildly swung the world meat supply and demand. I mean, the Chinese are trying to raise more in large, you know, kind of integrated farms. But you still have a billion people that have to grow their own food in China.
So it's gonna be, you know, at the end of the day, I don't know that there's major changes in the next three to five years there. So ultimately that's what fuels our business. And why? Because Canada, the U.S., Brazil, will continue to feed the world in China. And Europe right now is now going through a kind of a process of trying to rationalize animal agriculture. It's under attack because of nitrogen concentrations in the soil. You know, someone took a picture of 1983 and then took it again in, you know, 2023 and said, "Oh, the concentrations are up." You know, if you think about it, there's more pigs in the Netherlands than there are people. And so, you know, that all that means is you will spread agriculture into different places in Europe.
Poland will be the fastest growing and Spain also, and even France to a degree, believe it or not. But, so the feed segment is driven off of 11-12 million tons. It's our largest segment of picking up, you know, meat scrap and bone and separating protein from fat. The protein side can go into, you know, basically pet foods, aquaculture feeds, organic fertilizers, and then the fats go back to Diamond Green Diesel. So it's been an incredible growth story for us. We've added 18 new factories in Brazil. We got three more under construction. We're gonna add, I think, four or five more in the USA this year in 2023, starting up in 2024. So it's just really been a great growth story around the world. And what else can I add for you?
But I sort of, you had my next question and hopefully get this last one in here. But you talked about, you know, you just the opportunities in the specialty food business with your acquisitions. And, you know, can you sort of maybe just briefly go over that market, frame that market and where the growth opportunities are in this specialty food, these gelatins and collagens?
Yeah. You know, if you think of when you so part of the moat around the business today is we are a one-stop shop for a slaughterhouse. If you think of kind of esoterically, philanthropically, whatever, wherever your mind wants to go on what's our, my obligation to society today. Believe it or not, I sit up here with the belief of wanting to feed people more economically. And how do you do that? You create more value for the non-meat portion of that animal. So being able to separate edible, inedible, and what I'm gonna have to call destructible pieces or disposable pieces of that animal create a value proposition for a slaughterhouse that no one else can give today. The food segment is where we take bones and skins.
Those could be just ground up and put back into animal feed. But we actually, they're one of the greatest sources of collagen in the world. And so we have the number one collagen platform in the world with 17 factories today on four continents. And you say, "Well, what the heck is collagen and gelatin?" Well, for the old folks in the room, you would, it was the film coating for Kodak. We know what happened to Kodak now, right? So then the next thing was, "Anybody have a hangover this morning and take an Advil?" I did. It's that gel cap. And so that's where gelatin comes from. It's 100% protein. So the body knows how to process it. And then anybody have a gummy bear or yogurt or anything like that? It's an emulsifier, confectioning emulsifier.
About 10 years ago, we started down the path, Tony, which was really fascinating. We wanted. We had identified in the collagen molecule, it had 27 of the 28 necessary amino acids. It's missing tryptophan. So now you're seeing out there collagen peptides. We've learned how to isolate it. Anybody takes any Vital Proteins? I know Brad and I do in the morning for joint health and supposed to help the hair growth, but it's not working. I don't have much yet, but my nails do quite well. But that's been really a wonderful growth platform. You can look in our financials and you can see the kind of trajectory of that segment over the last four to five years.
And now we're headed to what I call, you know, collagen 2.0, which is isolating the individual peptide for health and nutrition benefits. We have some incredibly exciting stuff. I'm gonna still call it a year or two out yet because it's in clinical trials. It ranges from, you know, glucose management, hair growth, joint lubricity. I've seen some early information on dealing with dementia. It's hard to believe, but that's what we do for a slaughterhouse is we take that and then, you know, do we share enough that day? They'll always say no. But at the end of the day, we are trying to upcycle all of those products into stuff the world needs. We've embarked with the University of Berlin. We've now grown off of one of our products, you know, what you call a biomedical device.
I didn't really know what one of those was till they showed me a pancreas and for diabetic research. So hidden within the Darling system, while everybody wants to talk about DGD, is this incredible platform of collagen and collagen peptides that we have about 30% of the world's capacity in today. And where we go with it, stay tuned.
That's Randy, that's a great overview. You have so many things going on. You're so dynamic and just constantly moving. Thank you for being here today. I'm sorry we don't have time to talk more about it. It can go on forever. Brad, thank you for coming and hopefully have you back next year. Well done.
We'd love to. Thank you.