Earnings Call Transcript
Archer-Daniels-Midland Co (ADM)
Earnings Call Transcript - ADM Q2 2021
Operator, Operator
Good morning and welcome to the ADM Second Quarter 2021 Earnings Conference Call. All lines have been placed on a listen-only mode to prevent background noise. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's call Vikram Luthar, Senior Vice President, Head of Investor Relations, Chief Financial Officer, Nutrition for ADM. Mr. Luthar, you may begin.
Vikram Luthar, CFO
Thank you, Shelby. Good morning and welcome to ADM's second quarter earnings webcast. Starting tomorrow, a replay of today's webcast will be available at adm.com. For those following the presentation, please turn to slide two, the company's Safe Harbor Statement, which says that some of our comments and materials 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 risks and uncertainties. ADM has provided additional information in its reports on file with the SEC concerning assumptions and factors that could cause actual results to differ materially from those in this presentation, and you should carefully review the assumptions and factors in our SEC reports. 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 provide an overview of the quarter and highlight some of our accomplishments. Our Chief Financial Officer, Ray Young, will review the drivers of our performance, as well as corporate results and financial highlights. Then Juan will make some final comments, after which they will take your questions. Please turn to slide three. I will now turn the call over to Juan.
Juan Luciano, CEO
Thank you, Vikram. I'm pleased to share with you results that continue to demonstrate our success in delivering strong and sustained earnings growth. This morning, we reported record second quarter adjusted earnings per share of $1.33. Adjusted segment operating profit was $1.2 billion, up 44% versus the second quarter of 2020. Our trailing fourth quarter adjusted EBITDA was about $4.5 billion, almost $900 million more than a year ago. And I'm proud to report that our trailing fourth quarter average adjusted ROIC was 9.7%, which is both significantly higher than the 8.1% of the prior year period and also represents the achievement of our 10% objective. I'm proud of the entire ADM team for their great results this quarter. We're living up to our promises and our purpose. And the continuing execution of our strategy is delivering impressive ongoing growth for our company, our customers and our shareholders. I'd like to take a moment to highlight some of our accomplishments from the quarter. Slide four, please. Over the last decade, we made cultural, technology and process changes that help us revolutionize how we do our work every day.
Ray Young, CFO
Thank you, Juan, and good morning everyone. Please turn to slide nine. The Ag Services and Oilseeds team continued their remarkable performance from the first quarter with another excellent quarter. Year-over-year, Ag Services results improved. The North American origination business had a strong second quarter, effectively managing its positions in a dynamic pricing landscape and achieving significantly higher export volumes, largely due to corn sales to China. In contrast, South American origination was notably lower than the same quarter last year, affected by slower farmer selling and high commodity prices, which hindered contract fulfillment. Global trade performance declined compared to the robust second quarter of 2020, when customers were increasing inventories during mid-COVID-19. Results were also influenced by timing factors that are expected to reverse. Crushing saw significantly higher year-over-year results, as the business performed well in a strong vegetable oil demand environment, leading to better execution margins in North America for soy and in EU softseeds. However, results were somewhat reduced by weaker soybean crush margins in South America due to diminished biodiesel demand. Additionally, there were around $70 million in net incremental negative timing effects that are likely to reverse in upcoming quarters. Refined products and other results were considerably higher than the prior year, driven by ongoing recovery in foodservice and positive timing effects in North America, though partially offset by the reduction in Brazilian biodiesel mandates. Equity earnings from Wilmar also increased year-over-year. Looking forward, we expect Ag Services and Oilseeds performance in Q3 to surpass that of the third quarter of 2020, primarily due to stronger crushing results. We continue to project full-year results that will be significantly better than the very strong performance of 2020. Now, slide ten please. The Carbohydrate Solutions team performed exceptionally well with results nearly double those of the previous year. Starches and Sweeteners, including ethanol production from our wet mills, saw significantly higher results year-over-year in a highly dynamic pricing environment, benefiting from about $90 million in positioning gains across the ethanol sector, as well as more normalized results from corn oil. Sweetener volumes increased, indicating a recovery in demand from the foodservice sector. Ethanol margins improved compared to the prior year, driven by a rise in driving miles in the United States.
Juan Luciano, CEO
Thank you, Ray. Slide 13 please. When I look back on our outstanding first half results following a record 2020, I see a team that is executing at a high level and a strategy that is delivering according to our plan. We have been constantly refreshing our portfolio, divesting from non-strategic businesses and redeploying capital consistent with our strategy. In doing so, we've built industry-leading capabilities to meet customer and consumer needs in high-growth categories such as meat alternatives, a category we expect to reach more than $100 billion in sales worldwide by 2030 and in which our PlantPlus Foods joint venture is now participating, selling consumer products across Brazil and readying its North American launch. Another example is dietary supplements, a segment on track to have $80 billion in sales globally by 2025; and in which we're constantly expanding our product portfolio including our recently introduced Bio-Kult Brighten, which includes ingredients to reduce tiredness and fatigue. And then there is pet food, which is forecast to grow to more than $130 billion globally by 2025 and is an area in which we launched our new premium cat food in Mexico earlier this year. The list goes on. Renewable green diesel, pharmaceuticals and personal care, beverages all large high-growth opportunities powered by macro consumer trends like sustainability and health and wellbeing. And in each of those segments and more, our unparalleled global footprint, fully integrated value chain, customer insight, broad portfolio and speed to market are setting us ahead of the competition and fueling our growth. That's why we are so optimistic about our path forward. Of course, there are always going to be short-term factors for us to navigate. But those are not things that will impact our long-term success. Our confidence is rooted in the transformation we began a decade ago which continues with our work in productivity and innovation, as well as our expanding participation in large and fast-growing market opportunities. So to conclude, we have a great start to the year and we expect to continue our momentum in the second half to deliver very strong 2021 earnings. As we've discussed, we are moving to a new phase of our strategic growth plan. With what we have accomplished over the years on capital discipline, targeted cost reductions, and cash generation, moving through our portfolio transformation and our efforts to optimize business performance, drive efficiencies, and expand strategically, I believe we have successfully increased our base earnings power from $3 a share back in 2015 to a range of $4 to $4.50 this year. And now, as we enter the next stage of our growth leveraging the key macro trends of food security, health and well-being, and sustainability with our continued focus on productivity and innovation and with future targeted investments, we believe our medium-term annual earnings trend growth rate will be in the high single-digit percentages from these $4 to $4.50 per share baseline. With that, operator, please open the line for questions.
Operator, Operator
Your first question is from Adam Samuelson of Goldman Sachs.
Adam Samuelson, Analyst
Yes. Thank you, and good morning, everyone.
Juan Luciano, CEO
Good morning, Adam.
Ray Young, CFO
Good morning.
Adam Samuelson, Analyst
I want to clarify something you mentioned in the prepared remarks: the baseline EPS of $4 to $4.50 this year and the expectation of high single-digit growth thereafter. Should we interpret that as a formal EPS range for 2021 based on the performance year-to-date? I’d like to ensure we understand that correctly.
Juan Luciano, CEO
Yes, Adam. When we developed the previous phase of the strategy, our goal was to grow from $3 to a range of $4 to $4.50 and achieve a 10% return on invested capital. As we began to see those goals within reach, we started working on the new phase of the strategy. Using the base of $4 to $4.50, we created a five-year plan. This plan, which incorporates the opportunities I mentioned along with a focus on productivity and innovation, projects that from the base of $4 to $4.50, we will grow at a rate of high single-digit growth annually over the next five years. That's what we communicated in the outlook. Are we still on the line?
Adam Samuelson, Analyst
I'm sorry. And then, just a market macro question, if I may. Just, we've seen some volatility in oilseed crush margins around the world of late. It seems like, especially in China, the soy meal demand has waned a little bit, with the wheat substitution. It seems like the global industry is really crushing for veg oil, given all the RD demand around the world. Can you just help us think about kind of how that rolls forward, as we think, especially with you more heavily weighted towards soybeans and some pressure in terms of softseed crop availability on the oil side, as we go through the balance of the year and into 2022?
Juan Luciano, CEO
Thank you, Adam. We are very optimistic about the prospects for crush for the rest of the year and into next year. From a North American perspective, margins remain exceptionally strong in the $45 to $50 range. This is largely due to strong vegetable oil demand, partly driven by RGD, although we have already seen good oil demand. The recovery of food services and the reopening of the economy are also enhancing oil's share of the crush contribution. Additionally, tightening supplies and logistical challenges in South America are making U.S. soybean meal more competitive in global markets. We are observing some compression in European soy margins, which may drop to $10 to $20, as South American oil imports put pressure on crush margins, particularly during this period when Argentina and Brazil are most competitive thanks to their harvests. They have reduced their biodiesel mandate, allowing for more oil exports. Despite the softening crush margins in Europe, we benefit in biodiesel and RPV. Meanwhile, Brazilian margins for domestic plants remain solid at $25 to $35, even with the B10 biodiesel situation, and are expected to stay strong as they transition to higher B12 blend rates starting in September. In China, margins are low due to high bean prices and decreased soybean demand as the herd undergoes a rebalance; a lot of wheat feed is currently being used. As we approach the wheat harvest, we are optimistic about the ability for soybean meal and corn inclusions to increase, which is a positive sign for the future. Canola margins were very strong in the first half but have weakened due to a short crop from dryness in Canada, and they are likely to remain volatile until there is more certainty regarding the Canadian crop. Two factors we feel confident about are the value of our switch capacity in this shifting margin environment and the importance of our integration along the long value chain. In North America, we capture margins in crush but to a lesser extent in biodiesel, while in Europe, we capture more in biodiesel than in crush. This ability of our footprint to adapt to the shifting margins throughout the value chain has been very beneficial during these volatile times.
Adam Samuelson, Analyst
That's incredibly helpful color. Thanks so much. I'll pass it on.
Juan Luciano, CEO
Adam, maybe on the first question that you mentioned, again, the $4 to $4.50, as I said before, just to clarify, is our baseline in which we ran the exercise, because that was the landing spot of our previous strategy. And it's not a forecast or guidance for this year.
Operator, Operator
Your next question is from Ben Theurer of Barclays.
Juan Luciano, CEO
Good morning, Ben.
Ray Young, CFO
Hi Ben. Ben, are you on the line?
Operator, Operator
We'll go to the next questioner. Your next question is from Luke Washer of Bank of America.
Luke Washer, Analyst
Hi. Good morning.
Juan Luciano, CEO
Good morning, Luke.
Ray Young, CFO
Good morning, Luke.
Luke Washer, Analyst
So, I wanted to ask you a few quick questions on your carbon capture projects. I think they're really interesting. Are you getting any 45Q tax credits for the implementation of that technology? And now that it appears that it's commercially viable, do you intend to start the permitting process or working with other partners to build out and start capturing carbon at some of the other plants?
Juan Luciano, CEO
Yes. So the answer is yes to both. So we have a big permit for Decatur that we plan to, of course, leverage. And then, yes, we are exploring our ability to do so for other plants. We've been doing this relatively quietly, Luke since 2017. And as I said before, we have stored more than 3.5 million tons safely underground. And this gives us the ability to start differentiating our products that we can assign some of the credits to and have those products be deemed low-carbon intensity products. So we have, again, a big experience. We've been doing this for four years, in two different facilities. And we feel very good about the future. And this is going to be a growing part of our operations, for sure.
Luke Washer, Analyst
And maybe just a quick follow-up on that. This does lower the carbon score and the carbon intensity scores of your plants, right?
Juan Luciano, CEO
That's correct.
Luke Washer, Analyst
Okay.
Juan Luciano, CEO
Yeah.
Luke Washer, Analyst
Okay, great. Can you provide an update on Carb Solutions? It appears you performed exceptionally well this quarter, especially compared to expectations set earlier this year. Could you explain the change in your expectations and how progress was made throughout the quarter? Also, can you discuss the $90 million in positioning gains you achieved? Additionally, you mentioned normalized results for corn oil. With corn oil prices currently being very high, do you believe this is becoming a new standard because of renewable diesel? Any additional insights would be appreciated.
Juan Luciano, CEO
This quarter was essential for us to restart the ethanol dry mills that we had shut down due to low demand. From a technical perspective, the start-up went perfectly, and we achieved better margins than we initially expected. Additionally, our risk management was effective, particularly regarding corn and the ethanol sector. Sweetener volumes increased compared to last year as customers prepared for summer. It's important to consider the performance of sweeteners in both Q2 and Q3, as many customers stocked up in anticipation of summer demand with the easing of COVID restrictions in the U.S. Overall, it was a solid month for volume.
Ray Young, CFO
In response to your question about corn oil, we have observed that corn oil is once again aligning with soybean oil. Last year, we experienced a separation due to high demand for corn oil from the snack food sector, which caused a significant increase in corn oil prices. This divergence led to various mark-to-market challenges we faced. However, we have addressed those issues over time, and currently, corn oil and soybean oil are converging, returning to a more typical relationship that we have seen historically.
Luke Washer, Analyst
Great. Thank you both.
Operator, Operator
Your next question is from Ken Zaslow of Bank of Montreal.
Ken Zaslow, Analyst
Hi. Good morning, guys.
Ray Young, CFO
Hi, Ken.
Juan Luciano, CEO
Hi, Ken. Good morning.
Ken Zaslow, Analyst
You keep on tempting us with this productivity and innovation. Can you put some color in terms of quantification on how much this is going to create in not just 2021, but beyond that and how do you frame those two opportunities?
Juan Luciano, CEO
Yes. Ken, looking at what we've done over the past five years, our savings have primarily come from productivity and innovation, with about two-thirds attributed to productivity and one-third to innovation. Moving forward, the contributions from both areas will be equal, around 50-50. This balance is driven by numerous opportunities, including nutrition, biomaterials, and renewable green diesel, among others. When we assess our plans starting from a theoretical range of $4 to $4.50 and factor in the projects aimed at productivity and innovation, we anticipate high single-digit percentage growth in operating profit annually over the next five years. We're optimistic about this outlook. In Q4, we will hold an Investor Day to share more details and insights. You can already see some of our initiatives, such as our investments in Spiritwood, the acquisition of Sojaprotein, and the expansion of our Valencia plant with Biopolis and microbiome projects. All these areas are receiving funding for organic growth. As we implement this plan, it represents more of an investment strategy compared to previous periods, leading to increased CapEx and investment in light of the significant opportunities ahead. The markets we are targeting exceed $300 billion, and we believe we are well positioned to capture a substantial share of them. The potential before us is considerable.
Ken Zaslow, Analyst
Let me just follow up. When considering the high single-digit growth rate, to what extent do you believe it is related to the structural improvement in R&D over the next few years? And how much of that is driven internally?
Juan Luciano, CEO
Yes. Looking at our three businesses over the next five years, we expect moderate growth in Ag Services and Oilseeds, while Carb Solutions is projected to remain flat or slightly decline. In contrast, we anticipate strong growth in Nutrition. The growth in Ag Services and Oilseeds can be attributed partly to our internal improvements and partly to industry factors, including consolidations and strong margins. There's a robust demand which we expect to persist, driven by the 400 million middle-class consumers in China adopting diets similar to those in the U.S. This shift is increasing the focus on health and wellness, as well as sustainability, which influences many of our initiatives. Even before our recent developments, we were dealing with a tight oil market primarily due to food oil demands. Thus, our performance has been impacted by structural issues as well as the enhancements we've made over the years.
Ken Zaslow, Analyst
Thank you very much.
Juan Luciano, CEO
You’re welcome.
Operator, Operator
Your next question is from Michael Piken of Cleveland Research.
Michael Piken, Analyst
Good morning. Can we explore Nutrition further? It seems to be a significant contributor to the growth. Should we anticipate a 15% increase in 2022 on top of the current 20% growth rate? Additionally, which categories are experiencing the highest growth apart from plant protein? Thank you.
Juan Luciano, CEO
Yes, Michael, when we look ahead at Nutrition, we anticipate growth in the range of 15% to 20%. We've stated 15% for this year, but halfway through, we've adjusted that to 20%. The business is performing very well, with revenue growth in this quarter and maintained margins. We've done a great job managing both gross margins and EBITDA margin on sales. Our excitement is not just about the categories we are in, but also about our win rates and customer engagement, which have doubled since last year. As the economy reopens and foodservice becomes more active, customers are increasingly eager to launch new promotions and products, which weren't happening before. We are seeing this uptick across beverages, health and wellness, and alternative proteins. So, conservatively think about 15% growth per year; more aggressively, you can consider 20% per year. In that range, we will continue to grow over the next few years.
Michael Piken, Analyst
Great. And then, a follow-up question just shifting gears. Could you talk about the impact of the recent kind of Supreme Court ruling? And there's been some talks about possible changes to the renewable fuel standard. Maybe your thoughts on the growth potential or lack thereof for the US ethanol market moving forward in light of some of these policy uncertainties? Thanks.
Ray Young, CFO
Yes, Mike. There has been significant news regarding the recent Supreme Court ruling and comments from the EPA. When we look past the headlines to understand what is fundamentally happening, we still believe that the Biden administration and the EPA are committed to addressing climate change and decarbonizing the economy, with biofuels playing a crucial role in that agenda. The Biden administration has clearly indicated that they do not intend to grant small refinery exemptions like previous administrations have. As President Biden stated, we should be insisting on standards rather than seeking exemptions. Therefore, we anticipate that the Biden EPA will take a balanced approach regarding future small refinery exemptions. When we consider the supply-demand dynamics moving forward, the RINs balances, and the recovery in driving miles as we emerge from the pandemic, we expect the supply and demand for gasoline, which translates to ethanol, to create a supportive environment for the ethanol industry in the medium term. At the same time, it is important to note that we have strategically decided to monetize our dry mills. We paused that process during the pandemic due to weak ethanol demand, but during that time, we explored alternative options. There is increasing interest in sustainable materials and solutions. It seems there might be opportunities for us to investigate non-vehicle uses of ethanol, leveraging it as a sustainable feedstock for other products. One promising area is Sustainable Aviation Fuel (SAF). With the airline industry aiming for a low-carbon or net-zero future, SAF will be an essential part of that transition. Prior to the pandemic, the US airline industry consumed 30 billion gallons of aviation fuel annually. We are examining the possibility of using our Decatur carbon sequestration site, in conjunction with our corn processing output, as feedstock for a low-carbon SAF product. So, in addition to considering monetizing our dry mills, we are exploring the SAF concept, which could provide another avenue for utilizing our dry mills and removing those ethanol gallons from the vehicle market.
Operator, Operator
Our next question is from Tom Simonitsch of JPMorgan.
Juan Luciano, CEO
Good morning, Tom.
Tom Simonitsch, Analyst
Good morning, everyone. Hi. So following up on the Sojaprotein acquisition yesterday, can you provide some more color around how your strategy for alternative proteins varies by region?
Juan Luciano, CEO
Yes, I believe the strategy in specialty proteins is to remain close to our customers and align our capabilities with the rapidly growing market, which is expanding at over 10% annually. The products are consistently being enhanced each quarter. We hold a robust position in North America, particularly in soy derivatives, and have established a strong presence in South America, backed by a significant investment of $250 million. Additionally, we've expanded our pea protein production capacity in North Dakota and are now increasing this capacity in Europe. We have a small operation in Europe, but we've also acquired the largest producer there, which has an excellent location within the non-GMO soybean harvest region and offers a diverse array of products sold in 65 countries across various applications. We continue to enhance our capabilities, and this will not be the last announcement regarding specialty protein. These are still early days in a fast-growing market where we hold a leadership position, and we plan to grow further.
Tom Simonitsch, Analyst
That's helpful. And a question on China. The USDA cut its China soybean import forecast this month. What are you assuming for that trade in the near to medium term? And how would it impact your crushing footprint?
Juan Luciano, CEO
Yes. Listen, I think that we are maybe more optimistic about China medium-term than maybe with the news are giving right now. China has done an exceptional job of controlling COVID. And as such, they have recovered from that very successfully. So there is a lot of economic activity and hence demand. They have done a terrific job in coming back from the ASF pandemic. They have recovered. So they have the consumer and they have the animals to actually consume. Of course, they are very strategic in their purchases. And right now, it's not the time to be buying a lot of beans because beans are expensive and there is a crop in the US coming. And we think that that's when they're going to come. You also have to remember a couple of things, Tom. Over the last two or three weeks, we lost 15 million tons of production around the world due to weather issues. Whether it was the drought in Canada with that impacted canola and wheat, whether it was Russia, whether it was the impact was on sand and in wheat and whether it was the corn crop in Brazil because of drought, all these products are competitive products in the Russian to soybean meal. So those products will not be available to compete with soybean meal, which will give soybean meal a higher inclusion in the ration. And in our estimate, given the small canola crop in Canada, we think that China will have to probably import 2 million tons of extra soybeans to offset that canola gap that they have right now. So all in all we feel that we're still going to have strong export volumes in Q4 of this year from North America.
Tom Simonitsch, Analyst
Thanks very much. I will pass it on.
Operator, Operator
Your next question is from Robert Moskow of Credit Suisse.
Robert Moskow, Analyst
Good morning. I have a question about the new earnings base you're presenting. Historically, external factors can change rapidly and significantly affect your earnings. What can we expect from the external environment to assure us that the earnings base is credible and achievable in various external circumstances?
Juan Luciano, CEO
Yes. Rob, the way we thought about it when we put together the plan is, and I think I expressed some of that before, is of course we look at the things that we can see into the future. You can argue the magnitude but we give our forecast forward and we add inflation to that. And we say some of these things may come back to the middle if you will or reverse to the means or whatever you want to call it. So, let's put the negative side there. So, we consider some of that. And then we look at our productivity and innovation and we said, can we build a robust enough agenda in productivity and innovation that actually can offset some of those headwinds whether they are headwinds on ethanol or whatever your favorite crush margin into the future or whether it's inflation? And we look at that and the result of that exercise is that productivity and innovation earnings stream coming forward offset all that potential decline that we have estimated and offset it and giving us a result that high single-digit growth rate in profits over the next five years. So that's the way we think about it. So this is not a scenario in which everything goes perfect and margins are at peak level for five years. In our scenario, margins normalize, we have inflation and then we are able to offset a lot of that through growth and through productivity. That's what we are saying in terms of our new base.
Robert Moskow, Analyst
Right. In terms of normalizing carbohydrates, it appears to be the most significant aspect since it's projected to generate $1 billion this year.
Juan Luciano, CEO
Yes. When I was responding to Ken, I mentioned that Nutrition is a significant contributor to growth among our three businesses. When we began reporting Nutrition annually, it was generating just over $300 million. This quarter, it surpassed $200 million, which is noteworthy. We expect this trend to continue positively over the next few years as we aim for $1 billion and beyond. Carb Solutions, on the other hand, is experiencing a decline. Meanwhile, Ag Services and Oilseeds are showing healthy, though not exceptional, growth rates. Overall, our numbers reflect a realistic scenario that we are confident in, which is why we are sharing it publicly today. Much of the situation is within our control.
Robert Moskow, Analyst
And last question. You said that there's been consolidation in the soy crush industry and that is part of the reason for your confidence. But you are opening up a new crush plant now. Can you give a little more color about how much consolidation there's been? What do you think crush capacity looks like today compared to a few years ago? And where do you think it's going in the next few years from an industry perspective?
Juan Luciano, CEO
There has been consolidation among smaller regional players, which is significant. For instance, we have seen Algar in Brazil and our soybean joint venture with Cargill in Egypt. Additionally, we've made strides in expansion, like the Spiritwood project, which we've been developing for the past two years and just announced. This capacity is supported by RGD. Considering soybean meal demand in North America, we need to accommodate a 2% to 3% growth in demand annually. This means we require a fully operational plant every couple of years to keep pace with demand and ensure we can meet growth needs. Therefore, we don’t view any of these new builds as excessive; rather, they're essential to satisfy that demand.
Robert Moskow, Analyst
Okay. Thank you.
Operator, Operator
In the interest of time, please limit yourself to one question. Again, please limit yourself to one question. Your next question is from Ben Theurer of Barclays.
Ben Theurer, Analyst
Great. Good morning, Juan, Ray, now we try it again. Thank you very much, and congrats on the results.
Juan Luciano, CEO
Good morning Ben.
Ray Young, CFO
Morning Ben.
Ben Theurer, Analyst
Just one question. If you could elaborate a little bit on those $90 million on positioning gains across ethanol and what's been driving that throughout the quarter. And is that something you think is something recurring, is this a one-off? How should we think about it because it was obviously sizable within the segment?
Ray Young, CFO
Yeah, Ben. I mean our team’s do an excellent job managing risk, right? And when you just talk about managing risk, it is both managing the risks of the inputs and the outputs. And so the positioning gains that we had in the quarter, in the second quarter, the $90 million it's a combination of what I call the ethanol complex, right? So it's a combination of how they're managing the corn, how they're managing ethanol, how they're managing RINs, all these positions. And as you know it was a very volatile quarter when you looked at the prices of corn and ethanol and RINs, but they managed exceptionally well. And so $90 million normally they would generate risk management gains. We highlighted it this quarter because this was an exceptional quarter. And by the way, it wasn't just an exceptional quarter. It was an exceptional first half of the year, because when you take a look at the first half of the year, they probably had positioning gains roughly with a similar amount in the first quarter as well. So, therefore, the Carb Solutions team really hit all of the ballpark in terms of risk management in the first half of this year.
Ben Theurer, Analyst
So for the future we should expect some of it, but maybe not at the same magnitude. That's a fair assumption?
Ray Young, CFO
Yeah. I mean, again, I mean I would never ask the Carb Solutions team to hold back. But again they will always manage their positions exceedingly well. And I would say this was probably an exceptional performance for the first half of the year.
Ben Theurer, Analyst
Okay, perfect. I’ll leave it here. Thank you very much for squeezing me in again.
Ray Young, CFO
Thank you Ben.
Operator, Operator
Your next question is from Vincent Andrews of Morgan Stanley.
Steve Haynes, Analyst
Hi. This is Steve Haynes asking about the biosolutions business portfolio. You mentioned some other growth initiatives and have announced several partnerships and agreements. Could you clarify which specific target growth areas you foresee for that business moving forward?
Juan Luciano, CEO
Yes, that business began with a customer base where we realized that many products from Carb Solutions were being utilized in non-food and non-beverage sectors. We have formed a new team to take a more proactive stance on this. Our approach is market-driven, targeting areas like construction, pharmaceuticals, cosmetics, and other sectors. This team has achieved about 10% sales growth, and these areas represent very profitable opportunities that currently do not require additional capital, as we are utilizing existing products in new applications. We have brought on board experts in marketing and technology to help us penetrate these new markets. There is a substantial customer pool available, as many companies are announcing their de-carbonization goals for 2040, which necessitates a transition from oil-based to plant-based materials. We are the largest player in this sector, offering the most extensive range of products. You can expect continued growth in this area as we are just beginning. However, we cannot provide much detail about our customer engagement due to the confidential nature of our agreements and the preferences of many customers to keep their initiatives private.
Operator, Operator
Your next question is from Ben Kallo of Baird.
Ben Kallo, Analyst
Hi. Thank you very much for taking my question. The first one is just on South America gross margin. Could you just talk about if there's a structural change or is it just a temporary change as it relates to biodiesel headwinds? And then the second question is on M&A. I know you just did a deal, so congratulations on that. But on the larger acquisition front from your experience, one, are there targets out there? And then two, is it easier for the heavy lifting of integration to do a large acquisition than the smaller tuck-in ones like you announced yesterday? Thank you.
Juan Luciano, CEO
Yeah. Thank you, Ben. So let me address South America first. So, of course, our bigger participation is Brazil. It has been a tough year for Brazil this first half of the year in general. We expect the second half of the year to have the possibility to be a little better. Biodiesel is B12 now and that has been confirmed. We'll have to see the first auctions there. So crush margins are better. Domestic margins are $25 to $30 per ton export is about $10. Bottle oil and volumes and prices are better in the last two months. We started the year tough there. Remember that this is a society that is going through the tougher parts of COVID. So demand is difficult there. But we have seen an improvement. Domestic meal market is also paying for the higher soybeans. So that's good. We have – Brazil has reduced exports of corn, of course, because of the drought. But the domestic market is paying the premium. So Brazil is not going to run out of corn, and it's importing a little bit from Brazil. So I would say in general, with oil – domestic oil being supported and the volumes being there, and with biodiesel going back to B12, we expect the second half of the year to be a little bit better than maybe what the first half was.
Ben Kallo, Analyst
And then the second question on M&A, just on targets and appetite for a larger deal and then the integration of smaller deals versus many smaller deals versus the large ones?
Juan Luciano, CEO
Yeah. You know that we've been relatively quiet. We continue to be very selective about this because valuations are in general for some properties are a little bit too high. So it needs to be a perfect fit into our portfolio. And the perfect combination of things with Sojaprotein is in terms of the footprint, the complementarity of the geographic nature of it, and the quality of management, and the assets and the products. In terms of what is easier to integrate, I think that sometimes bolt-ons are a little bit easier. We find they fit better in a business that is already structured. When you bring a large company you need more adjustments on both sides if you will, if you think about some of these companies that have continued to operate in ADM almost with the same agility they were operating before, whether you say Protexin or Biopolis and some of these companies. So I think that the smaller companies are probably an easier tuck-in than maybe large companies. Large companies take us a little bit longer.
Ben Kallo, Analyst
Okay. Great. Thank you very much.
Juan Luciano, CEO
You’re welcome.
Operator, Operator
Your next question is from Ben Bienvenu of Stephens.
Ben Bienvenu, Analyst
Hi. Thanks. Good morning everyone. I appreciate you squeezing me in.
Juan Luciano, CEO
Hi, Ben.
Ben Bienvenu, Analyst
One quick one from me. You talked about the operational flexibility to shift and flex between softseed crushing and oilseed crushing. When you think about the backdrop for oilseed crushing margins across all your geographies, but in North America in particular where things are quite strong, those strong driven by soybean oil this go around, do you think the market is able to digest appropriately switching from a higher oil yield to a higher meal yield given the kind of relative softness in the meal market? And just how do you think about toggling between those two crush capacities in a market like this?
Juan Luciano, CEO
Listen, at this point in time, we are seeing good demand for both products. So, of course, as you know, there is a big pull from oil. There has been a big pull for oil. And then RGD is increasing a little bit of that, but our ability to place the mill given our footprint and our commercial operations is very strong. So that gives us a lot of confidence for North America for the second half. Listen, let me be clear. The Oilseeds and Ag Services business will have a very strong year, much better than last year, and we expect a strong second half as well that will drive the company to earnings that we never had before, certainly. And certainly, we'll be probably on the higher side or maybe outside the range of $4 to $4.50 that I mentioned before that was the previous landing spot of our strategy. That's what we're seeing at the moment. So the year started strong and we think that the second half will be very strong.
Operator, Operator
Your final question is from Eric Larson of Seaport Research Partners.
Eric Larson, Analyst
Yes. Good morning, everyone. I hope everybody is doing well.
Juan Luciano, CEO
Good morning, Eric.
Ray Young, CFO
Thank you, Eric.
Eric Larson, Analyst
I know we're short on time, so I'll keep this question brief and straightforward. It relates back to Adam's first question, focusing on some demand functions in the near term. You've covered the global biodiesel markets and the situation with US ethanol and RFS. However, there's been talk about some weakness in Chinese demand, particularly regarding their decision to reduce corn imports in July, which has caused some market concerns. The main issue seems to be African Swine Fever in China. Have they experienced a significant setback? It's hard to determine what's accurately coming from that region. Additionally, the recent floods in China have impacted about 10% of their growing area and resulted in many hog deaths. Could some of the short-term demand issues be related to the problems stemming from African Swine Fever there?
Juan Luciano, CEO
There are many issues occurring, and we are in a bit of a transition. However, pork prices have dropped, which should boost demand. It's important to note that during the ASF, consumers have turned to poultry, leading to increased demand in that area as well. We expect that as the supply and prices of soybeans improve, things will return to a more normal state. Our conversations with customers indicate that fundamentally, conditions haven't changed. The middle class in China is showing strong consumption of the major protein sources, which are all above prepandemic levels. The demand from consumers is present, and there is a sufficient supply of animals to be fed. The situation mainly involves strategic adjustments. After the significant increase in hog prices in China, government intervention was necessary to stabilize them, which has led to price reductions. There has been an increase in wheat, but we believe this will shift to include a greater amount of soybeans. While fluctuations may occur on a monthly basis, long-term protein consumption is on the rise, and China will continue to import more soybeans to meet that demand. We are optimistic about the future demand in China.
Vikram Luthar, CFO
Thanks. We do seriously have reached the queues. We have small issues throughout the areas and they have to supplement it with meals at some point. So, thank you, everybody for sharing.
Operator, Operator
There are no other questions in queue. I'd like to turn the call back to Mr. Luthar for any closing remarks.
Vikram Luthar, CFO
Thank you. Slide 14 notes upcoming investor events in which we will be participating. As Juan has already mentioned in the Q&A, we'd also like to announce that we will be hosting a Global Investor Day in the fourth quarter of this year, during which we will be talking more about the next phase of our growth. More particulars, including the specific date and format will be forthcoming. As always please feel free to follow up with me if you have any other questions. Have a good day and thanks for your time and interest in ADM.
Operator, Operator
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.