Bunge Ltd

Good morning and welcome to the Bungie Limited first quarter 2021 earnings release and conference call. All participants will be in listen early mode. Should you need assistance, please signal a conference specialist by pressing the start key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I'd now like to turn the conference over to Ruth Ann Wisner. Please go ahead.

Thank you, Jason, and thank you for joining us this morning for our first quarter earnings call. Before we get started, I want to let you know that we have slides to accompany our discussion. These can be found in the investor section of our website at bungee.com under events and presentations. Reconciliations of non-GAAP measures to the most directly comparable GAAP financial measure are posted on our website as well. I'd like to direct you to slide two and remind you that today's presentation includes forward-looking statements that reflect Bungee's current view with respect to future events, financial performance, and industry conditions. These forward-looking statements are subject to various risks and uncertainties. Bungie has provided additional information in its reports on file with the SEC concerning factors that could cause actual results to differ materially from those contained in this presentation, and we encourage you to review these factors. On the call this morning are Greg Heckman, Bungie's Chief Executive Officer, and John Neffel, Chief Financial Officer. I'll now turn the call over to Greg.

Thank you, Ruthann. Good morning, everyone. Turning to slide three, you'll see the agenda for today's call. I'll start with some highlights of the first quarter before handing it over to John, who will go into more detail on our performance. I'll then share some closing thoughts on how we're thinking about the remainder of the year before opening the line for your questions. Let's start with an overview of the quarter, turning to slide four. Thanks to the outstanding execution by our global team working seamlessly across our value chains, we're off to a great start for 2021. We brought positive momentum into the quarter and we continue to capture the opportunities in front of us, delivering our sixth consecutive quarter of increased earnings. Operationally, our team did a fantastic job maximizing our assets. We reached a new high watermark for crush capacity utilization and we continued to reduce unplanned downtime. We also executed well in the marketplace through outstanding customer service, innovation, agility, and partnership. Our strong results over the past few quarters reflect the value of working as a unified global company, and the benefits of our integrated model delivers to our customers on both ends of the value chain, from farmers to customers to consumers. We're committed to continuous improvement and managing risk effectively, because while we're incredibly proud of what we have achieved, we recognize there's always more we can do, especially in an industry that doesn't always offer a straight line path from quarter to quarter. The dramatic swings in consumer and customer behavior during the COVID pandemic are case in point. COVID is still very much a factor in most parts of the world, especially in Brazil and India, and our thoughts are with all of those still in the center of the battle with this pandemic. In regions where restrictions are easing, we're seeing increased demand and pricing across a range of products as people begin to get back to regular life patterns. And regardless of those more encouraging trends, our top priority continues to be the safety of our team, their families, and communities. Turning now to our segment performance, as you saw last week, we changed our reporting to better align with our new value chain operating structure. John will go into more detail on that later in the call, but our new segments more closely reflect the way we manage our business. In the first quarter, we delivered especially strong results in agribusiness. Earnings were driven primarily by oilseed processing, particularly in soft seeds, and our merchandising value chains. Refined and specialty orders, oils, had a record quarter. benefiting from tightening global supplies, improved demand, particularly in North America, and our continued focus on customers and innovation. And before handing the call over to John, you'll note that with our strong first quarter results and favorable outlook across a number of our markets, we raised our full year adjusted EPS forecast to approximately $7.50. I'll share some additional thoughts on the remainder of 2021 before opening the call for Q&A. And additionally, we announced this morning that our Board of Directors approved a 5% increase to our quarterly common dividend, reflecting our positive momentum and favorable market trends. I'll now turn the call over to John to walk through our financial results in more detail.

Thanks, Greg, and good morning, everyone. You may have seen our announcement last week that we have changed our segment reporting to align with our new value chain model and to reflect how we manage the business and review financial information. Within agribusiness, we have realigned greens and oilseeds operations into processing and merchandising. The fertilizer segment has been eliminated, with those results now included in the processing component of agribusiness. Processing, in addition to fertilizer, is principally the oilseeds operations, plus the soy and softseed crush-related origination activities previously included in grains. You can find additional details in Note 2 of our earnings press release and in the appendix of this slide presentation. Let's turn to earnings highlights on slide five. Our reported first quarter earnings per share was $5.52 compared to a loss of $1.46 in the first quarter of 2020. Our reported results include a net gain of $1.09 related to the previously announced sale of our Rotterdam Oil Refinery, as well as a packaging plant in Mexico. Reported results also include a mark-to-market timing difference of $1.30 per share. Adjusted EPS was $3.13 in the quarter versus $0.91 in the prior year. Adjusted core segment earnings before interest and taxes, or EBIT, were $737 million in the quarter versus $354 million in the prior year, driven by strong performances in our agribusiness and refined and specialty oil segments. As Greg noted, agribusiness results in the quarter reflect outstanding execution by the team, managing our crush capacity and trade flows. In processing, improved performance in the quarter was driven by higher results in all soft seed and soy crush value chains, which included an increased contribution from U.S. soybean origination. In addition, we achieved record Q1 soy and rapeseed crush volume and capacity utilization reflecting reduced unslacked downtime and excellent coordination between our commercial and industrial teams. This improved crush output brings immediate financial benefits, especially in periods of strong margins like we have been experiencing. In merchandising, improved volumes and margins in our global oils, corn, and wheat value chains were primarily driven by increased export demand, strong grain origination in North America and Australia, and outstanding execution of logistics and risk management. results in our financial services business were also higher. In refined and specialty oils, the strong performance reflected higher results in all regions, driven by improved execution as well as favorable market trends. Margins in North America refining benefited from early stage recovery in food service and increased demand from the renewable diesel sector. Higher margins in South America and Europe were more than offset lower volumes. Asia benefited from strong demand in India prior to the re-imposition of restrictions due to the surge in new COVID cases. In milling, results were down in both North and South America, primarily due to lower margins. Additionally, volumes in Brazil were negatively impacted by the resurgence in COVID cases. The increase in corporate expenses during the quarter was primarily related to the performance-based compensation accruals, a portion of which was not allocated out to the segments. The decrease in other was related to our captive insurance program. Results for our sugar and bioenergy joint venture benefited from higher sugar and ethanol volume and higher sugar prices in local currency. Part of your results reflect less favorable environment and were also negatively impacted by approximately $25 million in FX translation losses of the joint venture due to depreciation of Brazilian ground. For the quarter, income tax expense was 192 million as compared to an income tax benefit of 55 million for the prior year. The increase in income tax expense was due to higher pre-tax income. Adjusted for notable items, the effective tax rate for the quarter was 21%. Net interest expense of 64 million was in line with our expectations. Let's turn to slide six. Here you can see our positive earnings trend adjusted for notable items and timing differences over the past four years, along with the most recent trailing 12-month period. This improved performance not only reflects a strong operating environment, but also the hard work of our global teams and the benefits of our new operating model that brings organizational alignment across the regions, and importantly, has shifted our culture to one of continuous improvement and capital discipline. Slide seven compares our first quarter SG&A to the prior year. We achieved underlying addressable SG&E savings of $16 million, of which approximately 80% was related to indirect costs. COVID-related restrictions continue to impact areas such as travel, but we also realized lower employee and professional services costs. Moving to slide A. The most recent trailing 12-month period are cash generation, excluding notable items and mark-to-market timing differences. was strong at approximately $2.2 billion of adjusted funds from operations. This cash flow generation enabled us to comfortably fund our cash obligations over the past year and retain approximately $1.4 billion to strengthen our balance sheet in support of our credit rating objective of BBBAA2. Slide 9 details our capital allocation of adjusted funds from operations for the first quarter. After allocating $32 million to sustaining CapEx, which includes maintenance, environmental health and safety, and $8 million to preferred dividends, we had $493 million of discretionary cash flow available. Of this amount, we paid $71 million in common dividends to shareholders and invested $21 million in growth and productivity CapEx, leaving approximately $400 million in retained cash flow. Moving on to slide 10. The $400 million of retained cash flow and other cash sources, including proceeds from the sale of assets, more than offset our approximately $700 million of cash outflow this quarter for working capital. As a result, net debt decreased by approximately $100 million. We also took action to increase our availability under committed credit lines to $5.8 billion, leaving us with ample liquidity to support potentially higher working capital needs. As you can see on slide 11, we further strengthened our balance sheet during the quarter to a point where the entirety of our net debt funded 91% of our readily marketable inventory, with the 9% balance of RMI being funded with equity. Please turn to slide 12 for our return metrics. For the trailing 12 months, adjusted ROIC was 18.7%, or 12.1 percentage points over our RMI adjusted weighted average cost of capital, 6.6%. RYC was 13.4%, 7.4 percentage points over our weighted average cost of capital, 6%, and well above our stated target of 9%. The widening spread between these metrics reflects how we have been effectively using RMI in our operations as a tool to generate incremental profit. Moving to slide 13. Our discretionary cash flow and cash flow yield have continued to increase, reflecting strong cash flow generation It is available for strengthening our balance sheet, investing in growth, and returning to shareholders. For the trailing 12 months, we produced a discretionary cash flow of almost $1.9 billion and a cash flow yield of nearly 29%. Please turn to slide 14 in our 2021 outlook. As Greg mentioned in his remarks, taking into account our strong Q1 results, forward curves, and market conditions, we have increased our full-year adjusted EPS outlook from at least $6 per share to approximately $7.50 per share. This is based on the following expectations. In agribusiness, full-year results are expected to be up from our previous expectations, but down from 2020. In refined and specialty oils, we expect full-year results to be up from our previous outlook and significantly higher compared to last year due to strong first quarter results and positive demand trends in North America. Results in billing and corporate and other are expected to be generally in line with last year. In non-corp, full-year results in our sugar and bioenergy joint venture are expected to be a positive contributor, driven by improved sugar and Brazilian ethanol prices. Additionally, the company expects the following for 2021. An adjusted annual effective tax rate in the range of 20% to 22%, net interest expense in the range of $230 million to $240 million, Capital expenditures in the range of $425 to $475 million, and depreciation and amortization of approximately $415 million. With that, I'll turn things back over to Greg for some closing comments.

Thanks, John. Before opening the call to Q&A, I want to provide some perspective on the balance of 2021. As we noted, with our strong first quarter performance and what we see from the forward curves, we're forecasting full-year EPS be around $7.50. While we don't have full visibility in the back half of the year, the market and demand trends are favorable. We expect higher volumes because of increased post-COVID food service demand in several countries, as well as from the U.S. renewable diesel industry in the second half of the year. Because of the work we've done, we now have the ability to pursue the type of projects that will help us meet growing demand and continue to improve our platforms. We have a number of projects in various stages to enhance the efficiency of our core oilseeds business. We're taking a thoughtful approach as we invest in our specialty fats and oils and our plant-based protein businesses. And we're staying disciplined, but also recognize that the demand for sustainable products is providing us more opportunity than ever to grow our business as we continue to connect farmers to consumers. The leadership team and I are incredibly proud of the entire Bungie team's continued focus on execution, and we're confident in our capabilities and the business model we have here at Bungie. While there's always more work to be done, we're making progress every day, and the results are evident. And with that, I'll open the call to your questions.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. Our first question comes from Adam Samuelson from Goldman Sachs. Please go ahead.

Thanks. Good morning, everyone. Good morning, Adam. Greg, John, I was hoping to maybe dig a little bit on the updated outlook. First quarter was very strong. I'm just trying to think about How much did the full year outlook change based on the realized first quarter performance versus changes in forward curves, your hedge positions, and market outlook over the balance of the year, especially on the oil seed crush side where obviously margins have been pretty volatile, at least on the board, given tight soybean supplies?

Yes. Definitely could be more pleased with the way the team carries the momentum out of a record 2020 year into Q1 and how they continue to execute. And consistent with what we've done, we're going to tell you what we're seeing currently in the forward curves and the market outlook versus what we hope is going to happen. But that's given us the confidence to go ahead and raise the number from 6 to 750. There's definitely good momentum, and as we said, we're seeing as things reopen here in March, we're getting back to demand on the food side to pre-COVID levels. And then, of course, that's why we're seeing a little bit of help from renewable diesel here in North America on the oil demand side. We really expect to start to feel that in the second half. So feel real comfortable even as early as it is here in the year to go ahead and take the number up.

Okay, that's helpful. And then maybe just keying off something you just mentioned, on renewable diesel specifically, as that demand becomes more visible, I mean, you've seen cash oil prices and premiums be very strong year to date. Help us think about how we should expect that incremental demand on the veg oil chain to flow through your P&L, both in oil seeds, it's in crushed, but also in the refined oils piece on the refining side, which would seem to be a critical bottleneck from a feedstock perspective for a lot of renewable diesel producers near term.

Yeah, I guess one of the things we're really excited about is being basic in all the oils globally. And as connected as the global oils market is, we're going to see the benefit of that multi-year sustained demand really across our system. Of course, here in North America is where the majority of the work is starting to get done. And there'll be reformulation both for those that have the ability to do that on the fuel side and of course on the food side they've always been where they have the flexibility to reformulate. So we'll be working with our customers as the market adjusts and the market's doing its work with price to incent some additional supply. But that takes multi-years to get that in place so we're real excited multi-year demand.

And if I could just squeeze one more quick one in just on that last point. You've seen some competitors announced, especially in Canada on the canola crush side, a bunch of new capacity. As you would look at kind of margin structures across the forward curves, are we anywhere near where Bungie would consider growth capital on the crush side or more de-bottlenecking and maybe expansion on I'm just trying to think about the capital commitment against that opportunity.

Yes. I think if you look historically at this industry or really any industry, when you're adding a new demand, you see price react and the market starts to do its work to put that supply in place. A lot of announcements get made. Some of it even gets built. the leading off-seat crusher, we're doing the kind of things you'd expect we'll be doing. We're already doing the bottlenecking in our crushing and refining footprint. We'll continue to look at a number of projects where we have work ongoing to do some brownfield things, maybe add a refinery where we don't have one, or add some optionality to be able to crush soft. As far as greenfields, those have got to make sense. We're going to have discipline because it's not the spot economics, it's the the long-term economics. And so we've got to look at building the right plant in the right location with the right customer and the right partners. Because the one thing we're going to make sure that we do is when we put long-lived capital in the ground that we're going to be comfortable with the long-term returns.

Got it. I really appreciate all that, Collar. I'll pass it on. Thank you.

Next question is from Tom. Simonich from JP Morgan. Please go ahead. Hi, good morning, guys.

Good morning, Tom. So Argentina exported a record value of soy products in Q1. How are you expecting Argentina to impact the global soy complex for the rest of this year?

Yeah, we definitely, the market has needed That supply from Argentina is calling for it on price. It's that time of year when that market should be running hard. I think with the election coming up and there's still looming devaluation, we expect the farmers to be pretty much hand-to-mouth. We don't think that industry will run as hard for the balance of the year, but we have been running harder here in 2021 than we did in 2020. I think at the end of the year you'll see that Argentina has run harder in 2021 for the full year, but second half probably won't be as hard as the first half.

Maybe could you just provide some more color around the quarterly cadence of earnings to get to the 750 for the full year?

Hey, Tom, can you repeat that? Sorry, you cut out a little bit.

I said, could you provide some more color around the quarterly cadence of earnings to get to the 750 for the full year?

Sure. So I'll kind of look at it in halves, I think. I think based on our first quarter performance, which we largely push through the year, we're looking at probably a split between first and second half, about 60-40 is our current outlook. Obviously, things are going to move around a lot, but that's sort of how we look at it. Last year was a little bit the opposite. We were 35-65 first half, second half. But with the strong start to the year and certainly a lot less visibility into the second half, a little bit less liquidity out there and a lot of volatility in the market, we're looking at more of a 60-40 split.

As we've talked before, in this business, the one thing is the – the profit bill will move around within the value chain, and it'll move around from quarter to quarter, which is one of the reasons we've kind of tried to get people to also focus on LTM on some of the statistics.

That's very helpful. Thank you.

The next question comes from Ben Thur from Barclays. Please go ahead.

Hey, good morning, Greg Johns. First of all, congrats on the strong results. Thank you very much. Question around capital allocation and your further ideas around the portfolio. I mean, obviously, the one thing that just pops up is your non-core business. I mean, it's now the third quarter in a row with some positive contribution here. And I remember you've talked about it, that you want to get that stabilized to then basically move forward to make out of non-core what actually is not going to be reported anymore. If you could give us a quick update on where you think you stand in the process of the divestiture of that sugar bioenergy business, that would be my first question.

We are assessing the sugar business. Obviously, our first goal is to stabilize that business and improve the performance. Of course, the team is doing a great job. We're really happy to be part of that joint venture as a part of BP. As we said before, we're certainly looking at, at some point, exiting that business. But obviously timing is important. And the markets are a bit interesting in Brazil, obviously, with COVID impact. We're benefiting from better sugar and ethanol environment today than we had a year ago, better currency environment. But we have a little bit of time here before we can really actually execute on anything based on our agreement. But we are exploring some options there. thinking about strategically when it's going to be the right time. But, again, you know, our communication has been pretty consistent over the long run is that we plan to exit that business at the right time. Okay.

And I'd say just from a broader, you know, portfolio action, look, we're never done. It's never really over. It's constant evaluation, and, you know, we're challenging the lowest returning parts of the portfolio to get better. So we'll continue to always have that focus.

Okay, and obviously in light with that and now with the strong cash flow and your balance sheet capacity, et cetera, and you've talked about it in your closing remarks to look for your disciplined approach into investments, which regions, which areas, where do you think you still have a little bit of white space? Where do you think you can put some money to work to further grow to ultimately benefit investors? from what the underlying dynamics are. Is it within what might be done on renewable green diesel? Is it within the oil seeds that then go into whatever, meat alternatives, those kind of businesses? Just to give a little bit of a sense on where you're heading to from a capital allocation perspective.

Sure. I'll tell you, we are excited about the timing of finishing up our transformation work and the divestitures and to have the the great operating performance that we have and to now have the fuel. And as we say, we feel we've earned the right to grow. Because we continue to have the global footprint and we'll continue to look at that global network and where we need to fortify some of our strongholds and where we need to continue to shore things up. And of course, with what's going on in North America, that's changing some of the flows and that goes into our thinking. So that will continue to be on our core oil seeds and distribution network. Of course, that still has the benefit of population and per capita income growth. That kind of ticks along. Don't forget that demand growth continues to be there. To have two new sources of multi-year demand and two strong trends in place, it's a pretty exciting place to be. You think about renewable diesel, the demand that that's got and the adjustments that some definite opportunities. And then what we're seeing in plant proteins. And so that's creating not only a real opportunity on the plant protein side, but where our specialty fats and oils play the role in those products and giving them the taste and the mouthfeel and the bite that people love. We're already working with those customers. And the one thing that's clear, whatever trends you look at, everybody believes that there's not enough supply to meet the demand for the plant protein. So we're going to see a lot of opportunities there And then, of course, that gives us what's happening on the sustainability standpoint in lower carbon index products, whether it's going to the fuel, food, or the feed industry. We think that's going to create a lot of opportunities for products and services as it runs throughout our entire platform. So excited about the team continuing to execute and the choices and the competing that we're going to have for that capital for growth.

Perfect. Well, I'll leave it here. Thank you very much, Greg, John.

Thank you.

The next question comes from Robert Moscow from Credit Suisse. Please go ahead.

Hi, thanks. Just another question on the guidance, Greg. Your competitor has specifically pointed to fourth quarter as setting up extremely well because of exports to China. Your guidance seems to have something a little more conservative about fourth quarter. Is this just a difference in style in terms of how you're looking at the world, or is there something about your footprint that will make it, I guess, less easy to capitalize on a strong export environment in fourth quarter?

Yes, it might be a style issue. We're not forecasting what we You know, hope is going to happen. We're looking at the forward curves. I think the one thing that, you know, we've kept the approach consistent since we got here. And the one message that I think everybody was pretty consistent is they didn't want us, you know, promising things we couldn't deliver. So, look, I've got a lot of confidence in this team. And as we've said before, when we see it, we roll it forward, as we just did, taking it from 6 to 750. And if the opportunities here in Q4 develops the way that some think it will, this team will find a way to chase last year's record number.

Okay. And just a follow-up. You know, with corn up here at $7 and soybeans, you know, above $13, like it's beginning to feel more like 2008. And I'm just wondering if you have any – lessons learned from that time period? Is that just a different time and it's not what we should expect for this time? I mean, certainly the ride down in terms of deflation for commodities really hurt Bungie. So how should we think about it this time around?

I'd say a couple of key things. One, every time a market cycles, people are like, it's different this time. Hey, and maybe it is, and it's our job to look at that. And we do have some new demand in the plant proteins and new demand in renewable diesel. There's definitely a new focus on sustainability and climate-friendly and regenerative farming. And these are some long-term trends that are going to change things. How is what we're trying to figure out? But I think the biggest thing is that, you know, our leadership team all lived through that, and we've lived through some other cycles in ag and food. And this is a time to really instill some disciplines. This is when industries and companies get in trouble when there's a little irrational exuberance. You'll see us be very disciplined about what we're going to do and thinking about the long term and really stressing the projects that we do so that they will return for the long term. Frankly, we just spent some time the last two years cleaning up some things that we want to make sure that we don't make mistakes in the future. Rob, this is John. I would add on that

It was important for us in 2008 to manage our balance sheet, both on the way up and then on the way down as the markets came off. But what we ended up with was a very strong balance sheet at the end of 2008. And in 2009, to Greg's point, as people were struggling, we really went on the hunt looking for opportunities to invest. And over the course of a couple of years after that, after the financial crisis of 2008, we grew substantially in a couple of years just with the opportunities. And that's really how we think about it.

Great. Okay. Thank you. The next question comes from Luke Washer from Bank of America. Please go ahead. Hi. Good morning.

Morning. So I just wanted to take another stab at your guidance here, great guidance at 750. And you talked about how this is related to your expectation for crush. So maybe just two things. What does that expect in terms of your volumes for crush? kind of your processed goods and your merchandising goods, specifically maybe how it relates to global trade or China exports. And then on the crush side, is there significant variability by region, or do you see crush margins being elevated over the course of the year in most regions?

Yeah, let me start, John, if there's anything you can fill in. I'd say on the food side, let me tell you about how we're seeing it. On the food side, we're definitely seeing – We just on our refining specialty oils has had a record quarter with every region posting year-on-year improvement. And so a lot of the improvement efforts there we've had really started to unlock our downstream potential. We're seeing organic growth and we've got a strong order book in all regions. So a big part of that increase is definitely on the food side. And then as we talked about earlier, we do expect Argentina net-net to run harder this year than last year. And then second part of the question, I'm sorry.

Yeah, with respect to margins, kind of how we see those over the balance of the year, you're going to say fairly consistent on the soy side is what we saw in the first quarter. Overall, over the balance of the year, it'll be a little lumpy from Q to Q, but really pretty strong margins on the soft side. We saw very good margins in Q1. Maybe not as good over the balance of the year, at least based on the four curves, but obviously... you know, we'll take the opportunity once there. But I'd say on the soft side, you know, good strength really in the areas where we're big in Canada and Europe especially. We do expect, you know, elevated soft seed margins this year versus a year ago. Oh, I remember. You asked about crush margins.

Yeah, if I, you know, if you look around the world, of course, they're the best in the U.S., Europe second, and then South America second. but very volatile. And then China right now, of course, with some of the wheat feeding that happened over there that hurt meal demand, crush margins are the worst in China. We do expect those to improve, and we're seeing crush margins in Brazil improving now. So that's kind of how we see it setting up.

Good, thanks. And maybe just one more on Brazil. You know, the Safrania corn crop looks like it's going to be quite delayed here, and dry conditions seem to be persistent. So maybe you could provide more detail on how you expect that to impact your business, I mean, particularly with soybean supplies being rather tight, too. Is this an opportunity from you when you think about this location and your ability to provide value to your customers, or could this be a potential headwind in the back half of the year?

No, definitely opportunity. The one thing about this global machine here is that we definitely help customers during times of dislocation. Higher volume is good for us, higher volatility. So the environment that we've got right now is definitely that. And what you're describing in Safrina, yeah, with it being wet, it got in a little bit later. That's going to put it kind of a critical development period out there when it's usually drier, so there's some worry about Some concern about yield. So the global corn market will have to kind of fill in when that crop comes off late, and then depending how the weather and how volumes develop, of course, will be a price driver in which origin-destination pairs you actually end up sea shipping.

Great. Thank you. The next question comes from Vincent Andrews from Morgan Stanley. Please go ahead.

Hi. Thanks very much. Could you talk a little bit about what you're seeing from a farmer selling perspective? You already touched on Argentina, but maybe in Brazil. And I'm just looking at your cash flow statement and the secured advances to suppliers in the quarter was actually a source of cash, which is a use in the prior period. And your advances on sales were a little bit less of a use. So, you know, maybe I'm wrong, but I would have thought that maybe those would have been bigger numbers there. but maybe just talk about is the Brazilian farmer selling finally starting to decelerate in a material way, or what are you seeing?

Yeah, a little bit of a switch compared to last year, where you've got the Brazilian farmer behind year-ago levels, not marketing as fast, and we've got the North American farmer ahead of year-ago levels, and with these prices has been a more aggressive marketer. As far as those... There's more detailed questions. John doesn't allow me to answer those.

As Greg mentioned, farmer selling has slowed a bit in Brazil. We're still very active on the farmer financing and advancement side, but clearly in the quarter, things slowed down. We advanced a lot of funds in the fall ahead of harvest, and as we get into Q1 and Q2, and they're delivering on crops and you start to see those numbers down generally. Or maybe in Q1 they don't move a whole lot and then in Q2 we'll see a more dramatic drop as farmers deliver on crops. So not terribly unusual in terms of the cash flow.

Okay. That's helpful. And just as a follow-up, in oils into food service, I mean, as we're all painfully aware, a lot of food service outlets have just been shut for periods of time or operating at very low rates if they're up and running at all. So Presumably those folks need to, you know, build inventory, get inventory to a run rate where they could operate again. Do you think that occurred in the first quarter? Or, I mean, presumably there's more reopening to do. So is that a tailwind into 3Q? Or how long do you think it takes to get those food service customers to the inventory levels that they need just to be a going concern?

Yeah, we saw it slow, Jan, and then we had some of the bad weather through Feb. And then definitely the supply chain, we continue to battle fewer drivers out there on the truck side and getting the railroad crews in place as volumes come back up. But March was good, and that's where we saw March at pre-COVID levels, which gave us the confidence here in the back half. And then when we look at the order book here in the balance of the year, so we do expect volumes to be good. It'll be a little different than historically. It looks like You know, food at home may settle out a little bit above the pre-pandemic levels. And then as we see food service come back, I think the big QSRs are probably going to get more than their share, where the smaller food service and the dine-in looks like it may be slower to recover.

Thanks very much, guys.

You bet.

Next question comes from Ben Bienvenu from Stevens. Please go ahead.

Hey, thanks. Good morning, everybody. Good morning. I want to ask on the demand side of the equation, initially specific to China, but then more broadly, you mentioned the wheat feeding substitution, the demand for soybean meal being reduced. You mentioned you expect that to get better. Do you think that gets better because of a demand recovery or just a capacity utilization downtrend that kind of firms up the soybean meal market a little bit there domestically? And then as you look more broadly across your global footprint, and I guess here in the U.S., the primary users of grain, protein, and ethanol, those margin backdrops are quite favorable, so it doesn't seem like we're in an environment where we'd see any demand destruction. But are you seeing demand destruction yet at all anywhere across your global footprint and in any particular in-market? That would be helpful to hear.

Yeah, no demand destruction. Animal profitability continues to be good. Demand continues to be good on the male side as well as, of course, we've talked about the oil side. The two exceptions are Brazil, where they've made an adjustment from B13 to B10, and so we'll be watching and see if that comes back. And then, of course, a little bit on the Brazil and India with the resurgence of COVID, but they were stronger ahead of that. And then the wheat feeding that we talked about, and that's kind of the market, again, does its work. And you see it historically, wheat gets cheap, comes in the rations, gets fed, and the price adjusts. But that did steal a little bit of demand from us, and primarily in China on the soybean meal side. Feel pretty good about things.

Okay, great. Second question is related to kind of strategic initiatives. In the ethanol complex and to a lesser extent, but it's being talked about in fertilizers, there's a lot of discussion and engagement with carbon capture and sequestration. What opportunity does that present for you all as large processors? you know, in terms of whether it's going to make sense to make strategic partnerships or participate in projects. I'm just curious, within your broader ESG goals and greenhouse gas emission reduction goals, where does that fit?

Well, you know, we continue to work on our own platform around our own usage, but we really think there's just a huge opportunity. There's such a focus that on low carbon and it starts by being a low carbon feedstock supplier to the fuel industry. But I think we believe it's going to continue to be the change and it's really about giving the consumer what they want and getting some of that value back to the producer as they continue to change their farming practices to more climate friendly, more regenerative farming. And then I think we'll see everybody across food, feed, and fuel wanting lower carbon products all the way through. And that's going to be an opportunity in the products and the services. I think you're going to see innovation all the way across the industry. And change is good, right? That's new demand, and you've just got to be smart enough to step into the right So we're a huge part of the value chain, and that value has got to be pulled through from the producer to the consumer, and we're here to help that happen. So excited about the new opportunities that that's going to create.

Okay, great. Thanks. Good luck with the rest of the year.

Thank you very much.

The next question comes from Ken Zaslow from Bank of Montreal. Please go ahead.

Hey, good morning, everyone. Hey, Ken. Hey, Ken. Just a couple questions. One is, when you think about the forward curve, how do you think soybean oil demand from renewable diesel is in there at this point? And when do you think it will actually develop into the curve, and how does that progress?

Yeah, I think we're seeing it, right? As plants come online, as they book, as it becomes a reality, you know, the market tightens up, it's still a big part of that's got to play out in the second half. And I think as you see it play out, then you'll see if the inverse comes out of the market. But it's a second half 21 and then on into 22.

So you think that over the next half, you'll actually see it in the forward curve more than you're seeing it now. Is that fair?

You know, the market's going to do its work, but, yeah, you'd have to believe that. That's not what the market is telling you today, but I think that's what a lot of people believe, and so that's what we'll continue to watch it develop.

Okay. And the second question is, on your growth capex, can you talk about what were the key projects that you've done and what type of returns you'll get over what time frame so we could put a little quantitative thoughts on that? That would be helpful.

Yeah, Ken, most of the projects we're focusing on right now are really de-bottlenecking and smaller, I'll say, organic growth projects inside our existing facilities, so nothing greenfield at this point. But everything that we do needs a double-digit return. A lot of those projects that are underway today probably won't be additive until next year. But we look at long-term, and obviously in the first year of startup, those projects never hit the ground running. But certainly over the long run, there are solid double-digit returns on projects is what we expect. So that's principally what we've been doing right now is really focused on de-bottlenecking-type projects.

But that, you know, when you think about the low-risk assets, whether it's a, you know, whether it's a debottlenecking, you know, those are the highest returning, and you can do those the quickest and lowest risk. The brownfield that comes into the next category, or if you're looking at greenfield, but they've all got to meet that hurdle. I'm sorry, Ken.

When you think about for 2020, you know, let's just go back to some base number of, you know, In 2022, as your CapEx comes in, will that be incremental by 2% to 3%, 5% to 10%, 10% to 15%? How do I think about how that plays out in 2022 of all the CapEx? And I'll leave it there. I appreciate it. So you're talking about 21 CapEx and how that will impact 22? No, yeah, but the returns, how incremental will that be on 2022? Look, you've been laying down some of the, you know, pea protein, the, you know, infrastructure for renewable diesel, all the things you've been doing, I think some of it's going to come to fruition in 2022. Is that worth a couple of hundred basis points of growth? Is it worth 500? Like, just curious to see what you're thinking about in 2022 and 2023 from these projects.

Yeah, probably a good way to think about it is we're going to spend just a little more than $200 million this year in growth capital, and And, you know, some of that's going to come online early next year, some of it late next year, some of it maybe even the following year. Part of that's in the protein space. It's a little bit slower growth. Some of it will be in, as I mentioned before, de-bottle-legging type projects that are going to be, you know, fairly – start up fairly quickly. I think, you know, probably a fair rule of thumb would be to assume a mid-double-digit return on capital and probably legging in at, you know, randomly over next year to where by the end of next year, most of the capital we spend this year, probably a majority of it will be up and running by the end of next year. Some of it will carry on beyond that, but it's, you know, it's a list of a lot of detailed projects, so it's hard to just give you one simple answer.

Great. I appreciate it. Thanks. Thank you, Ken.

There are no more questions in the queue. This concludes our question and answer session. I would like to turn the conference back over to Ruth Ann Weisner for any closing remarks.

Thanks for your interest in Bungie, and if you have any questions, feel free to reach out to us.

The conference is now concluded. Thank you for attending today's presentation.