Analysing Earnings Calls for the Key Renewable Diesel Players

Insight Focus

  • ADM report the renewable energy transition is transforming global agriculture.
  • They were bullish for the second half of the year for oilseeds.
  • In the long term rising meat consumption should boost vegetable protein meal demand.

Per multiple prior posts, I promised I would be listening to key renewable diesel (RD) industry earnings calls (feedstock providers and refiners) and this morning I did tune into the ADM Q2 2023 presentation and the Q and A session that followed.

Here are my very brief takeaways:

  • Not one, not even one, reference by management or analysts to the recent EPA decision with its disappointing (for the collective RD industry) limited volume obligation for biomass-based diesel blending nor a question about ADM’s current perspective and strategy now that EPA has finalized the 2023-2025 period
    • Juan Luciano, CEO, did wax eloquent about the renewable energy transition still unfolding with enormous (positive) implications for global agriculture over the coming years (I am waiting on the transcript which will be issued tomorrow but I am pretty certain he said the industry is transforming at the fastest pace since the last century)
  • Clearly the enormous expansion in recently harvested Brazilian soybean and corn crops proved beneficial to ADM’s Brazilian operations (and Bunge likely confirms the same tomorrow during their scheduled call) as the record crops overwhelmed the warehousing and logistics capacity of the Brazilian industry which meant big returns on assets for those in position to handle the crops (physically, financially, and logistically)
  • As an aside, please remember my prior posts where I have mentioned that the USDA’s July 2023 world soybean production forecast has already contemplated another sequential record soybean crop for Brazil and an end to the 9-year Argentine production doom loop for their upcoming new crops. The question comes to mind, is the global picture on soybean supply now at the best it can get and is there only downside (crop production, revenues from warehousing and trade, processing margins) from here forward?
    • ✓ I especially thought of this as Mr. Luciano and CFO Vikram Luthar talked extensively about the enormous benefit for revenues and margins this year from the Brazilian soybean production (but frankly really did not discuss the Argentine disaster and its implications other than its benefits to US and Brazilian processing margins; see the table on the next page featuring negative Argentine new crop margins, traditionally the best margins of the year)

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  • Mr. Luciano provided a very bullish tone for the second half of the year, especially for US soybean processing margins given crop losses in Argentina leading to global protein meal tightness that must be replaced by the US as well the excellent demand for vegetable oil from the US RD industry. From a long-term perspective Mr. Luciano returned to metrics from prior earnings calls (US total meat consumption at 270 pounds per capita, China at 170 pounds per capita, and World at 100 pounds per capita). He then asked all of us listening to the call to imagine how significant global vegetable protein meal demand will be in the future to produce sufficient feed to produce meat proteins as each global citizen climbs the rungs toward the total US consumption metric.
    • Upon reflection maybe there was very little reason to address the EPA’s very short term RVO disappointment when the very long-term implications of global protein demand (and the benefits to global processing agribusinesses) really drives margins for the future
    • Mountain of US soybean meal prognosticators: are you listening?

Where in the world would you like to own a soybean processing plant? And where would you like to own a canola/rapeseed plant given the below metrics that ADM published today?

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Walter Cronin

Walter Cronin

Walter was the Chief Commercial Officer at Green Plains Inc. until August 2021. From August of 2015 until January of 2020 Mr. Cronin served as the Executive Vice President for Commercial Operations. Prior to that, Mr. Cronin was the Chief Investment Officer of Green Plains Asset Management LLC. GPAM is a wholly owned subsidiary of Green Plains Inc.(NASDAQ: GPRE). Mr. Cronin has served in that role since November 2011. Mr. Cronin served as Executive Vice President and trading principal of County Cork Asset Management from April 2010 to November 2011 when it was merged with GPAM. Mr. Cronin acted as a consultant to Bunge Limited (NYSE:BG), a multinational grain trader and oilseed processor, for which he served as a consultant developing trading and risk models for agricultural futures trading from September 2004 through March 2010. From February 1997 through June 2004, Mr. Cronin co-managed the Crush, Fundamental, and Ag-Spread programs at Kottke Associates, a commodity trading advisor based in Chicago. Prior to that time, Mr. Cronin was a member of the Chicago Board of Trade and managed the commercial grain operations for RJ O’Brien Futures from November 1994 through January 1997. From August 1989 until October 1994, Mr. Cronin traded grains and managed grain facilities in multiple locations for Continental Grain Company, and from February 1988 through May 1989, Mr. Cronin worked for the Henning and Krajewski clearing firm at the Chicago Board of Trade. Mr. Cronin served as a Peace Corps volunteer in Kenya from September 1985 through December 1987. Mr. Cronin received a BA from the University of Santa Clara in 1985

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