Earnings Call Transcript - ADM Q2 2024

Operator, Operator

Good morning and welcome to ADM's Second Quarter 2024 Earnings Conference Call. All lines are on listen-only mode to reduce background noise. This conference call is being recorded. I would now like to introduce your host for today’s call, Megan Britt, Vice President of Investor Relations for ADM. Ms. Britt, you may begin.

Megan Britt, Vice President, Investor Relations

Thank you, Eliot. Hello and welcome to the Second Quarter Earnings Webcast for ADM. Starting tomorrow, a replay of this webcast will be available on our Investor Relations website. Please turn to slide 2. Some of our comments and materials may constitute forward-looking statements that reflect management's current views and estimates of future economic circumstances, industry conditions, company performance, and financial results. These statements and materials are based on many assumptions and factors that are subject to risk and uncertainties. ADM has provided additional information in its reports filed with the SEC concerning assumptions and factors that could cause actual results to differ materially from those in this presentation. To the extent permitted under applicable law, ADM assumes no obligation to update any forward-looking statements as a result of new information or future events. On today’s webcast, our Chairman and Chief Executive Officer, Juan Luciano will discuss our second quarter results and share recent accomplishments on our strategic priorities. Our Chief Financial Officer, Ismael Roig will review segment-level performance and provide an update on our cash generation and capital allocation actions. Juan will have some closing remarks and then he and Ismael will take your questions. Please turn to slide 4. I'll now turn the call over to Juan.

Juan Luciano, Chairman and CEO

Thank you, Megan and good morning to all who have joined today's call. Today, ADM reported its second quarter adjusted earnings per share of $1.03 with an adjusted segment operating profit of $1 billion. Our trailing four-quarter average adjusted ROIC was 9.7%. We delivered strong cash flow from operations before working capital at $1.7 billion. Year-to-date, this equates to an adjusted earnings per share of $2.49 and an adjusted segment operating profit of $2.3 billion. Our team delivered solid results in challenging market conditions, highlighting the efforts of our teams across the business to manage through the commodity down cycle while putting our nutrition business on a path to recovery. Additionally, we saw signs of improving fundamentals within crush and ethanol later in the quarter, positioning us for a strong second half. We are also flexing our capital allocation strategy to return cash to shareholders, completing our planned share repurchases for the quarter and delivering our 370th consecutive quarterly dividend. Next slide, please. Let's start by reviewing the top-line results of our business units alongside our efforts to manage the cycle through productivity and innovation. Our service analysis results are significantly lower than the record results of prior years due to the ongoing rebalancing of the supply and demand environment and overall lower farmer selling. In anticipation of this year's challenges, we focused on driving stronger production volumes and actively leveraging our footprint to match supply to demand around the globe. We've also focused on differentiation opportunities, extending margins and growing volumes by more than 20% year-over-year in areas like destination marketing, achieving our targeted run rate in our Green Bison joint venture for renewable green diesel feedstocks, and bringing new solutions to our customers through innovations such as our recent EUDR-compliant fully traceable soybean program and the expansion of our regenerative agriculture partnerships and acreage. These regenerative programs highlight our leadership in this space. ADM was named a finalist in Fast Company's world-changing ideas in May. And just last week we released our second annual regenerative report detailing the data-backed results we are achieving across our global operations. Carbohydrate Solutions have continued the solid performance trajectory driven by strong margins for sweeteners, starches, and flour with higher volumes year-over-year. Ethanol margins also strengthened as industry production tried to keep pace with robust export and domestic demand. Along with this performance, we are continuing to drive innovation-based growth through the sustainability-centered evolution of the business. We have delivered 7% year-to-date volume expansion across our BioSolutions platform, increased starch capacity in our Marshall, Minnesota facility to meet growing demand from food, beverage, and industrial customers, and in a milestone for our strategic partnership, Solugen recently broke ground on a 500,000 square foot biomanufacturing facility that will use ADM-sourced dextrose for applications in water treatment, agriculture, energy, and home and personal care. Within our productivity agenda, the drive for execution excellence is continuing to deliver simplification and cost-saving opportunities across the enterprise. In Q2, we advanced hundreds of projects that put us clearly on the path to achieving our plan of $500 million in cost reduction over the next two years. We are accelerating these efforts and expect to see a significant portion of these savings by the end of 2024. Our focus on returning nutrition to its growth trajectory is also taking hold, and we are seeing sequential top-line improvement compared to our previous two quarters. While we are experiencing some downward pressure with texture and some protein demand, we are seeing strong growth in health and wellness sales, along with flavor sales growth, and excellent contributions from our recent acquisitions. In our targeted areas of focus, we are continuing to make progress. We continue to improve demand fulfillment for Flavors in our EMEA region, following the implementation of one ADM. We're optimizing costs across the Animal Nutrition portfolio, building the foundation to drive continued sequential improvement across the core of the segment. The use of our refined M&A playbook with our recent flavor acquisitions has proven to be an important accelerator to integration and the ongoing growth of our leading global Flavors business. Our innovation agenda is paying off, driving Human Nutrition revenues up 6% year-to-date, driven by flavors and our science-backed health and wellness portfolio. Our capital allocation efforts continued through the second quarter as we completed our planned share repurchases and announced our most recent dividend. We have already returned $2.8 billion of capital to shareholders to date. The second quarter marked an important point in our efforts to manage through the market realities of 2024 and deliver on our priorities. Across all three businesses, we are evolving to drive new pockets of growth in the near term while positioning ADM to take full advantage of macro trends of sustainability, health and well-being, and food security in the longer term. As we continue to drive operational excellence and make progress on our key priorities, we have confidence in our full year expectations despite uncertainties in the external environment. Before I hand over to Ismael for a detailed review of our second quarter results, I would like to first thank him for his leadership and guidance as Interim CFO through the first half of the year. It's the hallmark of ADM leaders to step up when our organization asks for their support, and Ismael has shown that his experience, passion, and knowledge of our business set him apart as one of our best. We are excited to be welcoming Monish Patolawala to ADM as our new CFO in August, and we know Ismael has important work to do as he returns to lead EMEA and Animal Nutrition's continued growth. Ismael, over to you.

Ismael Roig, CFO

Thank you, Juan. Let me begin by sharing my own thanks and congratulations for what our finance team has accomplished over the first six months of this year. As a 20-plus year employee of the company, I have seen amazing things our colleagues can accomplish when we work collectively to achieve them. And this was, again, the reality as I stepped in as Interim CFO. I'm proud to have served the company in this capacity over the last several months, and I'm excited to welcome and support Monish as he joins the team. For the second quarter ended June 30th, 2024, earnings per share on a GAAP basis were $0.98. Segment operating profit on a GAAP basis was $1 billion and included charges of $7 million, or approximately $0.01 per share related to impairments. Adjusted segment operating profit was $1 billion for the second quarter, a 37% decrease versus the prior year period. Adjusted earnings per share were $1.03. Lower pricing and execution margins led to a decline of $1.03 per share versus the prior year period, largely reflecting the impact of lower crush and origination margins. Volume improvement represented a $0.19 per share increase versus the prior year period, primarily reflecting higher volumes in Ag Services & Oilseeds and Carbohydrate Solutions. Higher costs of $0.07 per share were primarily related to $0.06 per share of unplanned downtime at Decatur East. Share repurchases represented a $0.10 per share increase versus the prior year. During the quarter, there was approximately a $0.02 per share negative impact from mark-to-market timing in the Ag Services & Oilseeds segment. Please turn to slide 7. For the second quarter, the Ag Services & Oilseeds team delivered $459 million in operating profit, reflecting a challenging operating environment compared to the prior year. On a year-over-year basis, mark-to-market timing for the segment was relatively muted. As Juan mentioned, strong supplies out of South America have led to a rebalancing of the supply and demand environment, while also shifting export market competitiveness from North America to South America. These ample supplies have also pressured commodity prices compared to the past two years, resulting in slower-than-expected farmer selling relative to last year and the five-year averages. From the demand side, inclusion rates for meal continue to be robust, supporting domestic and export demand. Oil values were pressured during the quarter as imports of used cooking oil as a feedstock for renewable diesel continue to grow. Ag Services results were lower than the prior year, primarily driven by lower results in South American origination, as lower farmer selling due to a smaller-than-expected crop in Mato Grosso and higher logistics costs related to industry take-or-pay contracts led to lower margins. North American origination saw lower volumes and margins as strong crop yields out of both Brazil and Argentina led to a shift in export competitiveness to South America, as well as limited carries and trading opportunities. As we began the quarter, global demand for both meal and oil remained strong. However, the return of Argentinian crush combined with the increased imports of used cooking oil also weighed on crush margins. As we progress later in the quarter, slower farmer selling in Argentina brought tighter supply and demand dynamics, driving an improvement in crush margins. The team performed well in this environment, leading to an executed soy crush margin of approximately $45 per metric ton for the quarter. While fundamentals supported improving crush margins as we expected, the more balanced supply and demand environment led to lower margins versus the prior year, translating to lower results. During the quarter, there were approximately $15 million of negative timing impacts versus negative timing impacts of approximately $195 million in the comparable period. In refined products and other, results were lowered due primarily to the reversal of prior positive mark-to-market timing impacts. In North America, increased pretreatment capacity at renewable diesel plants and higher imports of used cooking oil caused refining margins to ease relative to the record levels of last year. The biodiesel margin structure has also come off of record levels versus the prior year as a result of lower LCFS credits and RIN values. During the quarter, there were approximately $90 million of negative timing impacts versus positive timing impacts of approximately $90 million in the comparable period. Equity earnings from Wilmar of $60 million were lower compared to the prior year quarter. Moving to slide 8, the Carbohydrate Solutions team executed well, delivering $357 million in operating profit for the second quarter, which was higher versus the prior year. Industry fundamentals in the Starches & Sweeteners space continue to be supported by strong sweetener demand and an improving starch market. Within ethanol, markets became more constructive as we advanced later in the quarter and stocks moved lower, firming up both domestic and export margins. Demand for ethanol remained robust, supported by the summer driving season in the U.S., solid domestic blending rates, and export demand. The Starches & Sweeteners subsegment results were higher year-over-year as strong margins and volumes in North America were partially offset by lower margins in the EMEA region as they came off historically high levels. Our operational excellence efforts have helped streamline our processes and overall efficiencies, leading to improved cost positions. In the Vantage Corn Processing subsegment, strong export demand for ethanol supported solid ethanol margins, leading to higher year-over-year results. Moving to slide 9. Nutrition revenues were $1.9 billion for the second quarter, up 3% on a year-over-year basis and sequentially improved from the first quarter. Our Human Nutrition subsegment grew 10% year-over-year, as strong revenue contributions from M&A, improved volumes, and mix in flavors, combined with strong growth in our health and wellness business, more than offset headwinds from lower pricing in the texturants market and lower plant-based protein demand. Our Animal Nutrition subsegment had lower revenues versus the prior year, as lower pricing and mix were partially offset by improved volumes in the base business. Please turn to slide 10. The second quarter marked another quarter of progress with sequential improvement in operating profit for the Nutrition business when comparing to the prior year quarter. Human Nutrition results were lower, primarily driven by unplanned downtime at Decatur East and lower texturants pricing in the specialty ingredients business. Within Flavors, we have continued to improve operations, which has led to higher shipments sequentially. In Animal Nutrition, results were higher versus the prior year as improved execution in the base business led to higher volumes, and cost-optimization actions and lower commodity prices helped support margins, partially offset by lower pet solutions performance in North America and Brazil. Turning to slide 11, for the second quarter, Other segment operating profit was $96 million, up 12% compared to the prior year period, supported by higher captive insurance results due to lower claim activity. ADM investor services results decreased on lower interest income. In corporate for the second quarter, allocated corporate costs increased on higher global technology investments to support digital transformation efforts, increased legal fees, and increased securitization fees. Turning to our balance sheet and cash flows on slide 12, through the second quarter, the company has continued to generate healthy cash flows with $1.7 billion of operating cash flow before working capital. Our current leverage ratio is now within our targeted range, reflecting our disciplined approach to balance sheet management and robust cash flow generation. With robust financial flexibility, we have been able to support both strategic initiatives for long-term growth and leverage excess cash for enhanced shareholder returns. During the quarter, we repurchased over 16 million shares through our open market repurchase program, returning approximately $1 billion of capital, thus completing our targeted $2.3 billion of share repurchases for the year. In total, we have returned $2.8 billion of capital to shareholders through repurchases and dividends so far in 2024. We also continue to invest in the business with an enhanced focus on the reliability of our asset performance, allocating $700 million to capital expenditures. Now breaking down our expectations for the third quarter by segment on slide 13, in Ag Services & Oilseeds we anticipate the third quarter to be lower versus the prior year but improved from the cyclical low margin environment from the second quarter. We anticipate demand for both meal and oil to remain robust and support crush margins, however, likely lower than the levels in the prior year. We anticipate improved process volumes in the third quarter as we enhance our focus on operational excellence across our network and as our Green Bison joint venture achieves full run rates. It is also important to note the prior year period also included a $48 million insurance recovery related to damages from Hurricane Ida. In Carbohydrate Solutions, we anticipate a strong third quarter, but lower than the prior year as wheat milling margins moderate off elevated levels. Network optimization and operational excellence will continue to support strong earnings in the second half. We anticipate solid demand for ethanol both domestically and in the export markets, and upside opportunities could be presented if fundamentals hold. In Nutrition, we expect the third quarter to be higher than the prior year period. The team is systematically optimizing the organizational and operational structure across both Human and Animal Nutrition, which are expected to continue to yield cost benefits throughout the year. Coupling this with our efforts to convert pipeline opportunities and drive improved volumes, we anticipate to see continued sequential improvement in the Nutrition business throughout the year. Turning to slide 14 to discuss our full year guidance assumptions. We anticipated increased crop production in South America would lead to lower margins across the Ag Services & Oilseeds segment in 2024. Global soybean crush margins would likely be in the range of $35 per metric ton to $60 per metric ton for the year, with performance around the midpoint determined by the strength of soybean meal and oil demand. Though the larger crop production in South America did materialize, we experienced slower than average farmer selling in that region, as well as fewer merchandising opportunities in North America through the first half, which weighed negatively on margins in Ag Services. We expect these dynamics to continue to pressure margins in our third quarter. On soybean crush margins, we continue to see robust soybean meal demand based on solid livestock margins and some supply tightness among competing feedstuffs. From the soybean oil side, we expect that as renewable diesel production continues to grow in the second half, the demand for vegetable oil will remain well supported. With the prospects of a large crop in North America, we perceive increased opportunities for our interior elevator network and processing plants within Oilseeds and Carbohydrate Solutions in the second half. Taking this all together, our expected crush margin remains unchanged from $35 per metric ton to $60 per metric ton, with recent fundamentals supporting margins above the midpoint. With the first half results largely in line and balancing an improving crush environment with fewer opportunities in merchandising in the second half, our 2024 earnings per share range remains unchanged. Looking at the other metrics included in our total consolidated guidance, our full-year 2024 indications remain unchanged. Back to you, Juan.

Juan Luciano, Chairman and CEO

Thank you, Ismael. As we think about the rest of 2024 and the lead-up to 2025, we remain optimistic about ADM's ability to execute against our priorities while remaining agile in an evolving environment. The pressures of the current commodity cycle do not seem to be demand-driven, as we see continued robust demand for meal and oil. We will continue to focus on how we can actively manage our global footprint to best match these realities moving through the remainder of the year. Our processing capacities are improving throughout the year across our production operations, including the ramp-up of Green Bison to full capacity and growing production in Ukraine. Our forward book indicates that ADM is well-positioned to drive value through improved margin opportunities as we move into the back half of the year. Ag Services & Oilseeds results have remained robust, and we expect solid demand through 2024. Assuming fundamentals hold, we have an opportunity for upside in this part of the business through the year. Our initiatives to manage through the current cycle are expanding additional margin opportunities and opening up new channels to our customers, whether in the growth of destination marketing, the expansion of digital technologies focused on farmer needs, the extension of our regenerative agriculture programs and partnerships, or the growth of our BioSolutions platform. So as market conditions improve, ADM has even more exciting platforms for growth and differences. As noted, we expect to see a significant portion of the planned $500 million cost savings driven by the drive for execution excellence to be realized by the end of this initial year of the program, setting up for potential upside in 2025 as more projects are identified and executed. Our Nutrition business has moved beyond green shoots of positive momentum. We now see cyclical improvement across the broader portfolio: flavors, health and wellness, animal nutrition. As this continues through the year-end, we expect a return to growth that will continue and expand in 2025. In short, progress against our priorities, along with our experienced team's ability to pivot in response to an ever-changing external environment, give us confidence in a solid close to the year and set ADM up well for a continued growth trajectory for our full business in 2025. Thank you. Operator, please open the line for questions.

Operator, Operator

Our first question comes from Andrew Strelzik with BMO.

Andrew Strelzik, Analyst

Hey, good morning. Thanks for taking the questions. I guess I wanted to ask about the guidance. It seems like you tempered a little bit the language on the Ag Services & Oilseeds side. And nothing else really was changed, and you kept the EPS guidance. I guess I'm curious if there are other underlying offsets, or if you're thinking about the range differently at all. Maybe, as we've seen more crush margin strength materialized through the year, how much visibility do you have to that?

Juan Luciano, Chairman and CEO

Yes, thank you, Andrew. Listen, as you know, we have three businesses. Ag Services, I know it is in this, what we call a transition year, if you will, a rebalancing year from tight supplies to more comfortable supply and demand. So we anticipated having a Q2 that faced challenging conditions, which we did, and I think we navigated well. As we look at the rest of the year and the improvements we have seen over the quarter in terms of crush margins, we are executing at this point in time, even outside the range of $35 to $60 per metric ton that we previously gave. But of course, when you think about our forecast for Ag Services & Oilseeds, it was heavily weighted on Q4. To a certain degree, until we can put more businesses into Q4, it's probably that we have the same kind of visibility we had before. That's why we decided not to alter the range. On the other hand, Carbohydrate Solutions continue to improve, and as Ismael said in his remarks, if current ethanol margins that have improved over the quarter continue to stay that way, we could have upside there. Certainly, Nutrition continues to make significant improvements year-over-year now compared to just being sequential before. So we're optimistic about the second half. We just didn't want to change the guidance at this point in time since it's heavily loaded towards Q4.

Operator, Operator

We now turn to Tom Palmer with Citi.

Tom Palmer, Analyst

Good morning, and thanks for the question. I wanted to ask on the Nutrition side; you reiterated the outlook for a second profit to increase year-over-year for the full year. I first just wanted to confirm that this is after adding back the write-down in the fourth quarter, so off I think a $495 million base. And then I wondered if you could elaborate a bit on the key drivers of these improvements over the next couple of quarters. The implication would seem to be that 3Q is up year-over-year. The implication of 3Q being up year-over-year would seem to imply a pretty meaningful increase between 2Q and 3Q. Historically, we've seen the opposite where 2Q is a bit more reasonably strong. So just any help on that sequential improvement and then off just the base that we're looking to grow as we look at this year. Thank you.

Juan Luciano, Chairman and CEO

Yes, Tom. Yes, the base is what you describe; you are correct in your assumption there. Let me give you some feel here. The sequential improvement continues in the business, as we said, and when we start looking at Q3, it looks like it's going to be year-over-year improvement, which marks a significant improvement in Q3 versus Q2. If I go through the different segments, Flavors continues to do well. I think the business is up in sales 6%, excluding M&A. Of course, it's still reeling with some higher costs because of all the demand fulfillment improvements we needed to make. But demand is coming back to normal, recovering after this tuck-in period. So we feel good about our pipeline there. We feel good about our prospects for Flavor. Specialty ingredients continue to have a challenge in timing. Demand is soft as we are working through our plant issues. We also have the issue of texturants, or more specifically emulsifiers in that area, coming down after significant record prices last year. Health and wellness continue to be very strong; biotic sales growth is up to 22%. I think the pipeline there and the prospects continue to be very strong. As for the Animal sector, in Animal Nutrition, excluding pet, improvements continue based on a strong self-help plan so we feel good about that. Pet Solutions is finding mixed results around the globe. I would say Brazil's market conditions continue to be challenging, while North America, specifically the US, is still having some demand fulfillment issues. However, we are looking good in terms of the improvements we are making towards Q3. Mexico, our B2C business continues to be very strong. Overall, with the exception of specialty ingredients, which is the weak part, the rest of the business is looking good. So we expect significant sequential improvements and I expect we will make them year-over-year.

Operator, Operator

Our next question comes from Heather Jones with Heather Jones Research.

Heather Jones, Analyst

Good morning. Thanks for the question. I just wanted to ask about oilseed process volumes. So they were up 1% for the quarter. But in Q1, they were up nearly 9%. You remarked that utilization of Spiritwood was full for the quarter. So, I was just wondering if there were one-time issues during the quarter and if so, if they have been rectified in order to reach the mid to high single-digit growth outlook for the year.

Juan Luciano, Chairman and CEO

Yes. Thank you, Heather. As you said, yes, Spiritwood is performing very well, so its volumes are improving. Traditionally, in North America, when we have our low part of the cycle, where South America has all the capacity, we take shutdowns in anticipation of demand not being very strong, and we want to have our plants ready for the harvest. So, I think that's a traditional seasonal slowdown that we perform. Nothing unusual in that regard.

Operator, Operator

Our next question comes from Adam Samuelson with Goldman Sachs.

Adam Samuelson, Analyst

Yes, thank you. Good morning, everyone. I was hoping to drill into some of the cost and productivity initiatives that you have underway right now. And I think, one, there's a target of $500 million in savings by the end of 2025, kind of split between the two years. Can you maybe provide an update on what you've realized to date in 2024, what the 2024 savings are expected to be on a net basis, and any additional color in terms of where within the portfolio those are actually hitting the P&L? I really appreciate it. Thank you.

Juan Luciano, Chairman and CEO

Yes, thank you, Adam, for the question. Yes, we're very proud of how this initiative that we put together at the beginning of the year has continued to accelerate. So far, we are on track. If you think about $500 million over two years, that's about $125 million per half. We delivered about $127 million in the first half, so we're pretty much on track there. But this group of activities and projects continues to accelerate. So that's not going to be linear; it's going to be an accelerated bringing up to the P&L and to the bottom line. So we feel very good about it. We are very confident that our forecast shows that we're going to deliver on the $500 million way before the two-year mark. With regard to the distribution of that, sometimes when you have bigger manufacturing units or greater energy consumption, like in Carbohydrate Solutions, you have more opportunities to realize savings. I would say if I were to name a ranking today, initially, out of the gate, we see more savings in Carbohydrate Solutions and Nutrition because of some of the improvements we needed to make in demand fulfillment, with Ag Services & Oilseeds having to gain momentum during the second half so we will see that. Overall, I think we have a good distribution of projects around the four geographies and the three businesses. Again, momentum is essential, as you have a significant organization that you need to promote all these activities, so not everybody starts at the same time. We feel very good being on track, and again, we think we will exceed our $500 million target over two years.

Operator, Operator

Our next question comes from Ben Theurer with Barclays.

Ben Theurer, Analyst

Hi, yes, good morning, Juan, Ismael. Thanks for taking my question. I wanted to go back to the Nutrition business and just understand a little bit about your cadence into the back half as the Decatur East plant is going to come back online. You've noted the $25 million higher fixed cost observation. We just wanted to understand how immediately are you going to be able to gain this back, so as we move into the ramp-up of this, the East part of Decatur; how should we think about those cost headwinds that we've seen over the past? Is that to be recovered in 2024, or is that more of a 2025 situation? Thank you.

Ismael Roig, CFO

Yes, thank you for the question. From the point of view of plant protein, we do expect the plants to come online again in Q4, so we will see some of that recovery happening. Looking at the second half, we significantly pulled back quite a bit of volume in 2023 as a result of the Decatur East facility, but we also had time fulfillment issues. We reported a 3% revenue growth; as we look into the second half, we are seeing an acceleration of that, and we expect to grow in mid-single digits when we bring back some of these facilities and our demand fulfillment capabilities that we had lost in the second half of '23.

Juan Luciano, Chairman and CEO

I would say that perhaps complementing Ismael, I think it’s more of a ’25 impact, not much of a ’24 impact given the Decatur East ramp-up in Q4.

Operator, Operator

Our next question comes from Manav Gupta with UBS.

Manav Gupta, Analyst

Hi. A quick question. We are seeing a very strong rebound in ethanol margins, and I'm curious if it's just seasonal or is something else going on there. Do you think this sustains itself in the second half, and how does that position you well in the sweeteners and starches business across the second half? Thank you.

Juan Luciano, Chairman and CEO

Yes, thank you, Manav, for the question. We have been seeing for a while that exports have been increasing year-over-year, so ethanol continues to be one of the most inexpensive alkoxylates out there, and it's very competitive with gasoline in many parts of the world. So we have seen strong domestic demand due to miles driven in the U.S., especially now with the summer. We have seen good blending in the U.S. I think the price of ethanol is very competitive to encourage blending. Moreover, we have seen exports at levels that we've never seen before, probably north of 1.7, maybe even 1.9 billion gallons per year. So given the strong demand, it was logical to expect that the prices would rebound. At this point, we don't see any change. It will depend on how much the U.S. produces, of course, but as of now, margins are holding, and we believe that it bodes well for a strong Q3. In terms of Sweeteners and Starches, that business continues to have robust volumes and margins. If anything, you might see a slight pullback in the energy complex, which would benefit manufacturing costs because these are big facilities that consume a lot of energy. So with natural gas prices close to $2, it serves as a tailwind for us. Our Carbohydrate Solutions division is having a very good year, and we expect that to continue.

Ismael Roig, CFO

I'd like to compliment on the Sweeteners & Starches side; as you know, there's been a fairly low corn crop in Mexico, which has certainly helped with exports of sweetener and starch products into Mexico. So it has created a demand pool into Mexico that has helped the overall market structure for our business in North America.

Operator, Operator

We now turn to Salvator Tiano with Bank of America.

Salvator Tiano, Analyst

Thank you very much. I just wanted to clarify a little bit on the crush margins. I think you made a comment in your prepared remarks that soybean crush margins were $45 per ton in Q2, and at least based on the report, EBITDA, it looks like your crush margins per ton were much lower than that. What am I missing here? Are you suggesting that the way you're presenting the $35 to $60 range is materially different from what we would see, for example, on Bloomberg synthetic margins? Also, you made a comment that you recently executed trades above the top end of the range, above $60. Can you elaborate a little bit on that? Are we talking about just one of those trades, or is it something that you're actually consistently generating so far in Q3?

Juan Luciano, Chairman and CEO

Sure. Let me clarify for you. First of all, the $45 per ton is the $45 per ton we made this year. So we can work offline to walk you through that arithmetic, but there's nothing strange about it. If I go around the world on crush margins, at this point between $60 and $70 in the U.S. is where we are generating business, similar margins for soy in Europe, and Brazil may range between $10 and $50 depending on their domestic plants or export plants; China being around $20 to $25. I would say when we started the quarter, we were doing margins in the lower end of our range, and as Argentine farmers did not sell as much as the industry had anticipated, we saw more demand for soybean milk coming into North America, improving our crush margins. We finished the quarter a little better than we initially thought, about the $45 per ton. We are selling and we mentioned before that we were relatively open going out; some of Q3 is sold, and what we don’t have sold is going for about $60 to $70 per ton. So those are the current crush realities. I think we will move into Q4 where we have high expectations for a very large crop here in the U.S. The crops look promising so far, thus we expect to have plenty of raw materials. Demand for soybean milk continues to be strong globally, and I think low prices have incentivized demand, which is primarily driven by poultry, as you know. Additionally, on the oil side, we continue to see more renewable diesel plants coming online in the second half, which will bode well. So we remain positive about crush margins for the rest of the year in North America.

Operator, Operator

We now turn to Dushyant Ailani with Jefferies.

Dushyant Ailani, Analyst

Hi. Can you hear me? Yes. Thank you for taking my question. I just want to talk about the CapEx guide. I think it's improved or increased by about $300 million. I just wanted to see what's driving that.

Ismael Roig, CFO

Yes. I think CapEx is always prioritized based on needs, so maintenance, safety, and quality come first. Whatever the plants require at any point in time takes precedence. This is a bottom-up assessment of their respective needs. Then we fill it up with cost projects, which encompass the execution excellence challenge we have to deliver $500 million along with bringing in more ideas; some of those ideas require capital expenditures. You can see that growing. There is also a little bit of CapEx inflation in our numbers because things are a little bit more expensive than two years ago.

Operator, Operator

Our next question comes from Steven Haynes with Morgan Stanley.

Steven Haynes, Analyst

Hey, good morning. Thanks for taking my question. I wanted to come back to Argentina. You mentioned a bit of a tailwind toward the end of the second quarter due to slower-than-expected farmer selling. How are you thinking about how that evolves over the balance of the year and any risks associated with Argentina returning to the market in a more meaningful way going forward? Thank you.

Juan Luciano, Chairman and CEO

Yes. What happened in Argentina was a large expectation for the unification of the exchange rate, which has not happened thus far. On the contrary, the gap has increased to around 50% or 55%. So at this point, when you combine low commodity prices from abundant production with the exchange rate, it is not very favorable for the farmer to sell. Thus, the farmer in Argentina is selling a little more corn but is trying to hold onto their beans. The question remains whether the government will be able to unify the exchange rate. Currently, their priorities focus on fighting inflation, which is their main challenge. They do not have a lot of room to maneuver for any significant changes. Therefore, I think this is good for Argentina long-term, but it poses a short-term challenge for farmers. Unless special programs are rolled out by the government, which seems unlikely at this time, we should be cautious in assuming that significant crops will flood the market.

Operator, Operator

We have a follow-up question from Heather Jones with Heather Jones Research.

Heather Jones, Analyst

Thanks for taking the follow-up. I wanted to ask about the Chinese UCO into the U.S. situation. Our understanding is that imports have slowed, and there is an expectation that with Europe imposing anti-dumping duties on Chinese biodiesel, China may shift more of their UCO to that market rather than the U.S. I'm just wondering what you are seeing and how you expect that to evolve throughout the year.

Juan Luciano, Chairman and CEO

Yes, thank you, Heather. There has been significant industry noise about the prospects of possibly adulterated or not quite authentic UCO entering the U.S. market, and checks are being conducted for that. We have seen significant moderation in imports. I don't want to pinpoint an exact reason, but part of what you mentioned about Europe is true as well. Europe will not allow raw crops to be part of that, which means as they begin to build their renewable diesel strategy, they will need to utilize more UCO. It's natural that some of those flows would shift toward Europe. The current North American feedstock market is better balanced following a challenging Q1. I also think we have seen palm oil prices increase, which will improve prospects for soybean oil going forward in the U.S.

Operator, Operator

We have another follow-up from Salvator Tiano with Bank of America.

Salvator Tiano, Analyst

Yes, thank you very much. I just want to ask about the ethanol outlook. I know you talked about many factors, but clearly your commentary on the starches and sweeteners, which includes, I guess, the wet meals, was more negative, saying about lower ethanol margins year-on-year, whereas VCP, being the dry meals, was much higher year-on-year. Could you discuss a little bit the differentiation there? It seems like a lot of the delta is from the export side. Are you seeing different pricing and margins from the exports? As they become a much more important part of the ethanol mix, is this something that, besides being a driver of demand and operating rates, is margin accretive, or do the netbacks tend to be lower for exported ethanol?

Juan Luciano, Chairman and CEO

Yes, several factors are at play here with ethanol margins. Currently, the ethanol margins are significantly better than they were at the beginning of the quarter. There are particular export markets where we can export at a premium, and we are taking advantage of that. I don't have the specifics for which plants those are exporting from, but at this point, I would say there were some logistical challenges to ensure we can fulfill all of our export deals and get materials to the ports. As you mentioned, we see great demand and good margins, and we need to capitalize on that. Our plants are running optimally. Cost are decreasing a bit, so overall, this bodes well for our forecast. There's also no reason for demand to change precipitously outside of typical ebbs and flows. We are looking at Q3 with optimism.

Operator, Operator

We have another follow-up from Andrew Strelzik with BMO.

Andrew Strelzik, Analyst

Great. Thank you. I wanted to get your perspective on broader biofuels policy. As we get deeper into the back part of the year, we're approaching some upcoming changes, obviously concerning the PTC and possibly decisions around the RBO import-export dynamic. I was curious for some updated thoughts about how those policy shifts will impact your business and whether you think there's a risk regarding the timing of some of those changes. It feels like some of the timing around biofuels policy has been a moving target in various ways. So just curious about your thoughts on this progressing and its impact on your business from here.

Juan Luciano, Chairman and CEO

Yes. I think all of these regulatory frameworks create movements and uncertainty, and the more clarity the industry can have, of course, the better. Regarding the biodiesel blenders credit versus a producer credit, we still have a higher mandate for 2025, with a real deficit expected in 2024. It's crucial to consider that vegetable oil will be part of the solution to fill that mandate. The pie is getting larger, and vegetable oil should gain traction, especially now that California's CFS credits have decreased a bit. The short-term fluctuations in these regulations can be tricky to predict; we might see accelerated buying in Q4 or possibly a slowdown in Q1. But overall, as we observe the overarching policy, it seems constructive, leading to increased demand and growth for our crush margins in the medium to long term.

Operator, Operator

We have no further questions, so I'll now hand back to Megan Britt for closing remarks.

Megan Britt, Vice President, Investor Relations

Thank you for joining us today. Please feel free to follow up with me if you have additional questions. Have a good day and thanks for your time and interest in ADM.

Operator, Operator

Ladies and gentlemen, today's call is now concluded. We'd like to thank you for your participation. You may now disconnect your lines.