Earnings Call Transcript - BG Q3 2022

Operator, Operator

Hello, and welcome to the Bunge Q3 2022 Earnings Results Review. All participants will be in listen-only mode. Please note this event is being recorded. And now, I would like to turn the call over to your host today, Ruth Ann Wisener. Ms. Wisener, please go ahead.

Ruth Ann Wisener, Host

Thank you, Keith, and thank you for joining us this morning for our third quarter earnings call. Before we get started, I want to let you know that we have slides to accompany our discussion. This can be found in the Investors section of our website at bunge.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 2 and remind you that today's presentation includes forward-looking statements that reflect Bunge's current view with respect to future events, financial performance and industry conditions. These forward-looking statements are subject to various risks and uncertainties. Bunge 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, Bunge's Chief Executive Officer; and John Neppl, Chief Financial Officer. I'll now turn the call over to Greg.

Greg Heckman, CEO

Thank you, Ruth Ann, and good morning, everyone. I want to start by thanking the team. Through their outstanding focus and coordination, we delivered strong quarterly results against the backdrop of a shifting operating environment. The third quarter once again demonstrates the strength of our team and the power of our global platform. Through our global organizational approach and asset footprint, we've created the ability to adapt quickly to supply and demand disruptions. Whether the markets are driven by inflation, energy costs, weather impacts, conflict or, as in this quarter, all of those factors, the team uses our expertise, relationships and analysis to deliver for our customers on both ends of the value chain. Looking beyond the current market environment, we continue to focus on growing the business by making disciplined choices balancing benefits and risks. Take renewable fuels; the demand for low-carbon feedstocks continues to be strong and is expected to increase. We're meeting this demand in part with two partnerships we announced earlier this year. Our renewable feedstocks joint venture with Chevron is going well, and we're excited about our investment in CoverCress and its ability to develop a cover crop to bring a new low CI renewable oilseed to market. Just two weeks ago, we announced a joint venture with Olleco, the renewables division for ABP Food Group, to create a business that encompasses the full life cycle of edible oils. This partnership will expand our portfolio of renewable feedstocks in Europe and help address environmental and energy security challenges in key markets in that region. These partnerships are a great example of Bunge's commitment to finding innovative, sustainable solutions in the renewable space. As the global leader in oilseeds processing, we see this as our obligation and a significant long-term opportunity. At the same time, we're expanding our origination capabilities in South America with the launch of Origeo, a partnership with UPL providing an integrated and complete offering of inputs, services, financing solutions and agronomic consulting to farmers in Brazil. Turning to third quarter numbers, adjusted core segment EBIT was above last year's results and ahead of our expectations driven by strong performances in Agribusiness and Refined and Specialty Oils. John will go into more detail on the P&L, but I want to mention the impact of higher energy costs and inflation on Bunge. Like all businesses, we are impacted by inflation or recession but not in the same manner or magnitude as purely industrial companies due to our place in the center of the supply chain. Looking ahead, we expect the market to remain dynamic and are moving forward with our usual discipline. Based upon our execution so far and the current environment, we now expect to deliver adjusted EPS of at least $13.50 for the full year 2022, which would be our third record year in a row. In this market, having a solid balance sheet, strong liquidity and global optionality are a competitive advantage. We're in a great position with the flexibility to operate our business, invest in our future and return cash to shareholders in the form of dividends and share repurchases as we did here in the third quarter. With that, I'll hand the call over to John to walk through the results.

John Neppl, CFO

Thanks, Greg, and good morning, everyone. Let's turn to the earnings highlights on Slide 5. Our reported third quarter earnings per share was $2.49 compared to $4.28 in the third quarter of 2021. Our reported results include a negative mark-to-market timing difference of $0.19 per share and a net negative impact of $0.70 per share related to onetime items. Adjusted EPS was $3.45 in the third quarter versus $3.72 in the prior year. Adjusted core segment earnings before interest and taxes or EBIT was $740 million in the quarter versus $698 million last year. The higher results were driven by our Refined and Specialty Oils segment. In total, Agribusiness results were $528 million compared to $533 million last year. In Processing, results were essentially flat with last year as increases in North and South America were offset by lower results in Europe where a combination of a sharp rise in energy costs and increased imports pressured margins. Results in China were down primarily due to the impact of pandemic-related lockdowns. Merchandising results of $108 million were down slightly compared to last year as higher contributions from global grains and financial services were offset by lower results in global oils marketing. In Refined and Specialty Oils, higher results reflect strong performances in our refined oil operations in South America, Europe and North America. In Milling, higher results in North America were more than offset by lower results in South America. The decrease in corporate expenses was primarily related to the timing of performance-based compensation accruals. The decrease in Other was primarily related to lower gains on investments in Bunge Ventures. Lower results in our non-core Sugar & Bioenergy joint venture were primarily driven by the combination of lower ethanol volumes and increased costs. Net interest expense was up compared to last year due to higher interest rates partially offset by lower average debt levels. Also impacting the quarter were foreign currency borrowings in certain countries where interest rates were high. However, the incrementally higher borrowing costs were fully offset with currency hedges that are reported in gross margin. Let's turn to Slide 6, where you can see our positive EPS and EBIT trends adjusted for notable items and timing differences over the past four years along with the trailing 12 months. This performance trend demonstrates our team's ability to successfully manage through rapidly changing markets and also the strength of our global platform. As shown on Slide 7, year-to-date addressable SG&A has increased modestly year-over-year, reflecting the resumption of more normal business activities such as employee travel and related expenses as well as increasing investment to strengthen our capabilities and drive growth. Slide 8 details our capital allocation of approximately $1.8 billion of adjusted funds from operations that we generated year-to-date. After allocating $184 million to sustaining CapEx, which includes maintenance, environmental, health and safety, and $8 million to preferred dividends on shares now converted to common equity, we had approximately $1.6 billion of discretionary cash flow available. Of this amount, we paid $248 million in common dividends, invested $168 million in growth and productivity CapEx and repurchased $200 million of common shares during the third quarter. This left us with approximately $1 billion of retained cash flow, which we invested in additional working capital during the year while also reducing our net debt. We will continue to maintain a disciplined and balanced approach to capital allocation. Moving to Slide 9. At quarter end, readily marketable inventories, or RMI, exceeded our net debt by approximately $2.3 billion. As commodity prices have moderated recently, the cash that has been invested in inventory has been released and deployed toward debt reduction. To provide additional understanding of how commodity price movements and other factors impact our cash flow from operations, we have posted a presentation in the Investors section on our website this morning. Should you have any questions, feel free to reach out to our IR team. Slide 10 highlights our liquidity position, which remains strong. At quarter end, approximately $6.7 billion of our committed credit facilities was unused and available. This provides us ample liquidity to manage our ongoing capital needs in this volatile commodity price environment. As shown on Slide 11, our trailing 12 months adjusted ROIC was 22.2%, 15.6 percentage points over our RMI adjusted weighted average cost of capital of 6.6%. ROIC was 15.2% or 9.2 percentage points over our weighted average cost of capital of 6%. The spread between these two metrics reflects how we use RMI in our operations as a tool to generate incremental profit. Moving to Slide 12. For the trailing 12 months, we produced discretionary cash flow of approximately $2.2 billion and a cash flow yield of 21.7%. Please turn to Slide 13 and our 2022 outlook. As Greg mentioned in his remarks, taking into account our third quarter results, the current margin environment and forward curves, we've increased our full year 2022 adjusted EPS outlook to at least $13.50 per share, a $1.50 per share increase over our previous outlook. In Agribusiness, full year results are expected to be higher than our previous outlook but down from last year as stronger results in processing are more than offset by lower expected performance in Merchandising, which had a particularly strong prior year. In Refined and Specialty Oils, full year results are expected to be up from our previous outlook and significantly higher than last year, driven by our refining operations. In Milling, full year results are expected to be in line with our previous outlook and significantly higher than last year. In Corporate and Other, results are expected to be in line with our previous outlook and last year. In non-core, full year results in our Sugar & Bioenergy joint venture are expected to be lower than our previous forecast and down slightly from last year. Additionally, the Company now estimates the following for 2022: an adjusted annual effective tax rate of 16%, net interest expense of $300 million, capital expenditures of $600 million, and depreciation and amortization of $400 million. We have reduced our CapEx forecast from our previous estimate of $650 million primarily due to supply chain delays. We would expect to carry the shortfall over into 2023. With that, I'll turn things back over to Greg for some closing comments.

Greg Heckman, CEO

Thanks, John. Before turning to Q&A, I want to offer a few closing thoughts on how we're investing in the business to ensure that we're best positioned to capture the growth ahead of us, and that's in our physical infrastructure, our technology and, most importantly, our team. First, we're strategically investing in our existing facilities in safety and maintenance projects as well as in key upgrades to ensure our platform remains strong and efficient and operates at optimal utilization. Second, we're investing in and planning for new projects, both through partnerships as well as greenfield and brownfield opportunities that further our strategic goals and exceed our return requirements. We're also investing aggressively into digital tools. We know we will deliver our greatest impact when our teams are fully empowered to use technology, data and new ways of working to connect farmers to consumers in smarter, faster and simpler ways. This includes investments in interconnectivity, automation and machine learning to ensure our plants run reliably and at optimal performance. We're also investing in systems to increase real-time insights to help us better anticipate key market trends, manage flows and transactions. And this is a great example of our focus on continuous improvement in an area where we feel we already possess industry-leading risk management capabilities for Bunge and our customers. Most importantly, we're investing in our team. Having the right people with the right skills to make the best use of our assets and technology is what leads to our success. We continue investing in learning and development programs to support our strong talent at all levels of the organization. We're also expanding our intern and trainee programs to ensure that we have a steady and diverse pipeline of the best and brightest talent to develop into the next generation of leaders for this great company. And with that, we'll turn to Q&A.

Operator, Operator

And the first question comes from Ben Theurer with Barclays.

Ben Theurer, Analyst

So it's a structure question. So obviously, you raised the guidance by about $1.50 to $13.50 now, and you just set a third record year in a row. I mean we all know the market environment is really good. And I mean you've obviously leveraged on that. But could you talk a little bit about what is driving our results? I mean how much of that increase is structural, and how much is in control of Bunge? Also in light of that, just a few years ago, you made like $10 less earnings per share versus what you've been running at like last year to this year? So just to understand the magnitude, how much is structural, how much is Bunge itself and how do you think about this going forward?

Greg Heckman, CEO

Thank you, Ben. I want to start by discussing Bunge and then touch on the broader environment. We are operating a very different company now. The significant changes we have implemented, starting with our portfolio and numerous investments, have optimized our operations. Our global presence continues to play a critical role. We are managing our operations with a new level of discipline that extends beyond day-to-day risk management to how we approach and execute investments. We emphasize the quality of our assets, particularly in our large fixed asset businesses, where exceptional operational performance is essential. The collaboration between our commercial and industrial teams has led to improved volumes, increased capacity utilization, and reduced unplanned downtime. Our focus on operational improvements is noteworthy and vital, as is our commitment to strengthening our balance sheet, enhancing credit ratings, and maintaining liquidity. Additionally, our operating model and reward systems have fostered the agility necessary to capitalize on favorable conditions. This agility and alignment within our global team enable us to act quickly, as we have demonstrated even in the recent quarters. Externally, significant changes are evident; over the past three years, we have controlled many factors, but there are still several we have not. Renewable diesel and biofuels have become significant positive drivers globally. While we anticipate energy prices to remain volatile, global supply and demand have tightened, leading to increased unpredictability. The ongoing situation from the Ukraine-Russia conflict will have lasting impacts, regardless of the war's outcome, due to diminished trust and damaged infrastructure. We are also facing geopolitical tensions, weather extremes, and persistent supply chain challenges stemming from the pandemic, which have yet to fully resolve even as the pandemic recedes in many regions. All of this culminates in heightened complexity for everyone. Our business is focused on assisting customers at both ends of the supply chain to navigate this complexity and solve their problems. We take pride in demonstrating that our global footprint and operational methods enable us to deliver effective solutions under various circumstances.

Ben Theurer, Analyst

Perfect. That was very clear. I have one quick follow-up. As we look into the fourth quarter and considering your guidance compared to last year, could you provide more details regarding the annual guidance and your expectations for the fourth quarter in Agribusiness, Refined, and Milling from a sector-specific perspective?

Greg Heckman, CEO

Yes. I'd start by saying just reminding you what we do in our outlook is we look at what the curves are, and then of course, we look at what we have on the books already. What we are seeing in the Refined and Specialty Oils is a higher percentage booked here for Q4 and even starting out into 2023. Of course, that's the most stable part of the P&L, so that gives us some of the confidence in the at least $13.50. We're seeing no doubt an environment that has been very hard to predict. It's fairly risk off, I think, globally if you look at the macros. We're definitely operating with lower levels of risk, and it's very uncertain how it will play out. But I think that's what's in our outlook, that in the curves.

John Neppl, CFO

Yes. I would just add, Ben, that ultimately, we had a very good fourth quarter last year in Merchandising, and that's the one that’s the most inherently difficult to predict. We don't certainly forecast a quarter like what we saw last year, but that's also where the opportunity ends up when we see volatility. So with the at least $13.50 implies that there could be upside. But certainly, if we get it, it will be most likely in the Merchandising segment.

Operator, Operator

Thank you. And your next question comes from Ben Bienvenu from Stephens.

Ben Bienvenu, Analyst

I want to ask maybe a follow-on to Ben's question but in a slightly different way. Just thinking about where the stock is priced today, it looks exceptionally undervalued either relative to kind of the forward outlook in the next 12-month period or even at your mid-cycle earnings power, baseline earnings power update you gave us as of the last quarter. I'm wondering maybe, given the constructive backdrop that we see in the very visible demand drivers you talked about, what would have to happen for us to go either back to baseline or below that over the next year or a couple of years? Because it seems like there's a fairly draconian outlook being implied in the stock price today. I know you guys bought some stock back in the quarter. I think you probably agree it's undervalued. But I'm just curious about how bad things need to get? Does it need to be a tail risk? What needs to happen for things to go off of where they are?

Greg Heckman, CEO

Yes, we agree it's very undervalued, Ben, so thanks for calling that out. Look, we don't see an environment here in the next couple of years which is looking out fairly far for these businesses. If you look at the structural setup on what needs to be done from a production standpoint globally to continue to build the crops to what we see coming on demand, I think S&Ds continue to stay tight. We've talked about the tailwinds from biofuels generally and renewable diesel specifically. So, we don't see a way back to baseline here for the next couple of years. That's just not in the cards.

John Neppl, CFO

I agree with Greg's comment. When we examine the current front-end demand for soybean oil and refined oil, we find that it remains strong, even in a market where research and development may not be advancing as quickly as anticipated. The demand for soybean oil is robust, despite ongoing discussions about a potential recession. Historically, our company has performed exceptionally well and generated significant cash flow, even in challenging environments. Therefore, we are optimistic about the next few years. In line with Greg's perspective, I don't foresee a situation where the $8.50 baseline becomes relevant.

Greg Heckman, CEO

I think the other thing we're personally struggling with, and I don't think ourselves, our industry are specific to that, I think it's kind of broad-based. It's more expensive to build things, to build capacity, and it takes longer to get things done. That also extends the cycle. What we've talked about, I think globalization is done for a period of time. How long, we'll see. What that means is that when we had a supply problem or a demand surge globally, every origin and every destination was available to solve that problem in the past. That's no longer true based on what's happened with the war and geopolitical tensions. So with that not changing, there are fewer ways to solve which means more volatility. That also creates the opportunity as we have to help people solve problems and help with food security that sustains the cycle as well.

Ben Bienvenu, Analyst

Okay, that's great. Just as a follow-up, you did buy back stock in the quarter. What was the catalyst for that? What prompted that? Is that something you discussed in your multi-year plan as part of your capital allocation priorities? Can you help us think about expectations around that?

John Neppl, CFO

Yes, Ben, we've talked about in our go-forward planning that we're going to buy back $1.25 billion worth of stock over the next five years. It's really just part of our normal allocation plan. As we look forward and we looked at the amount of cash we're generating and our forward pipeline of projects, both CapEx and M&A, we felt like it was a good time to buy. We're continuing to generate cash, and this won't be a one and done. It's going to be a normal part of it going forward. We've said we'll kind of be opportunistic around timing and pricing. As you know, we have windows where we're blacked out around quarter ends and things like that, so we have to consider that sometimes a limited amount of time to do it in any given quarter, but it just felt like it was the right time to step in and do some. We'll continue to look at it every quarter like we always do.

Operator, Operator

Thank you. And the next question comes from Adam Samuelson with Goldman Sachs.

Adam Samuelson, Analyst

Regarding the fourth quarter outlook, I wanted to discuss Agribusiness. It appears that full-year Agribusiness is down to date, with the segment effectively flat overall. You mentioned that Merchandising performed well in the fourth quarter, but we shouldn't necessarily use that as a baseline. Can we infer from the processing and crushing side that margins, particularly in North America, remain strong? I'm thinking that processing might be higher year-over-year while merchandising may be lower based on market conditions. Is that the correct starting assumption, or am I missing something?

Greg Heckman, CEO

No, I think that's correct. When considering Merchandising, it's important to note that demand in China has declined due to the ongoing COVID zero policy, which has impacted both commodity prices and freight opportunities. We will see how this unfolds. On the crush side, North America remains very strong. However, Europe is facing energy challenges, which have affected our soy operations. That said, the team has effectively managed the situation despite volatile margins, either by shipping from other capacities outside the continent or by locking in margins when favorable. These are some key factors to monitor moving forward.

John Neppl, CFO

Yes, Adam, I would like to add that based on our current forecast, we expect to see an increase in processing. Considering the challenges posed by COVID in China and high energy costs in Europe, it's impressive that we will finish strong in processing. Last year, we had an outstanding performance in merchandising, and we anticipate a solid year again this year. However, last year was exceptionally strong, and while there's potential to replicate that success, we do not foresee it for the remainder of the year. Nonetheless, that's where some of the growth potential lies. On the Refined and Specialty Oils front, we have significantly outperformed compared to last year. With the strong first half in milling, we expect to surpass last year's results. Overall, aside from merchandising, which tends to be unpredictable and presents opportunities, the core parts of our business are looking very strong year-over-year.

Operator, Operator

Thank you. And the next question comes from Rob Moskow with Credit Suisse.

Rob Moskow, Analyst

Two questions. Could you provide more details on the processing volume for the quarter on a regional basis? Your volumes are impressive considering the tough conditions. I would like to know which regions are performing well and which are not. I assume Europe is down. Secondly, I have a question regarding your cash flow statement. Cash flow from operations is negative according to accounting rules, but it appears very positive when accounting for securitized trade receivables. Can you explain how that works? Also, concerning your share repurchase, is there any limitation on buying back as many shares as you wish, or is that not a significant factor?

John Neppl, CFO

Yes, thanks, Rob. Yes, first of all, operationally, when we look at the quarter from a refining and from a processing standpoint, actually, the two places we were down, one was Argentina; we were down slightly year-over-year for the quarter; and then in China. But everywhere else, we were flat to up. Strong volumes in the U.S. around processing. In Brazil, we were ahead of last year. In Europe, despite the difficulty, we were basically flat year-over-year in terms of volume on processing. With respect to cash flow, in part why we put a deck out on our portal this morning on our website is to try to help eliminate some of the confusion around the impact of our AR securitization program and how that impacts cash flow. It doesn't really impact cash flow. It impacts the presentation of cash flow. And...

Rob Moskow, Analyst

That's right. I see it now. It shows up in the investing activities, yes. I see it now.

John Neppl, CFO

We are currently working on redesigning that program and are optimistic that it will change how we report it externally, providing a clearer view of our actual cash flow. To understand our underlying cash flow, you need to consider the change in working capital and separate that out. We calculate our underlying cash flow using adjusted FFO, and there is a reconciliation in the back of our investor presentation that explains those figures. This is our approach. The trend in our working capital and inventory levels compared to our debt shows that while we have been able to reduce debt over time, we still increase working capital when opportunities arise. Our RMI and inventory levels have risen due to prices, yet we have maintained or reduced our debt during that time. This capital will ultimately be available for other uses and is a significant factor in why our leverage ratios have improved. Regarding share repurchases, we will act opportunistically. We do not plan to buy a set number of shares regularly, but rather will evaluate when it makes sense to do so. We have committed to this strategy, and considering our strong cash flow history and future expectations, I believe it will be part of our approach moving forward.

Rob Moskow, Analyst

Can I ask how you came to the number for 200 million? Why not why not 400 million, why not 500 million given the flex on the balance sheet?

John Neppl, CFO

Yes, that's a fair question. We considered our position at the time and chose that number. There isn't a complicated rationale behind it beyond the fact that we've committed to a minimum of 250 million a year. While we might not execute that all at once, there will be opportunities in the future where we could allocate more, similar to what you mentioned. We simply felt that was a suitable number for this quarter.

Greg Heckman, CEO

I want to take a moment to commend the team. We are focused on maintaining a global system, and the industrial team has excelled in making significant investments in asset health, ensuring that our assets are prepared and operational. Our key performance indicators have improved, especially regarding unplanned downtime. The teams are collaborating internationally, effectively managing the challenging margins in China and the complexities of the supply chain, successfully securing cash margins when available. Despite the difficulties in Europe with fluctuating energy prices, the team has shown great adaptability, successfully managing our operations across North America, South America, and Europe to maintain those margins and operate the assets that the industrial team has prepared. We are incredibly proud of these achievements.

Operator, Operator

Thank you. And the next question comes from Tom Palmer with JPMorgan.

Tom Palmer, Analyst

I guess just to kick it off. I wanted to get your thoughts on how shipping delays on the Mississippi River affect your business, both opportunities and headwinds?

Greg Heckman, CEO

Yes, it's definitely adding more complexity to an already complex situation. Of course, it's not unique to us, and that is part of having a global system. Of course, it's shifted things to the P&W. It has also shifted things to South America. This is one of the things that with what's happening in the Black Sea and now with the logistical problems with the river here in North America, our strong South American footprint which is always really important to us, but it's never been more important. We saw that even when the farmer in Argentina was liquidating soybeans earlier through the soy dollar that those exports then were able to get to China when things were tight in North America. It is about flexing that global system. Where product can't move to export, we are running as hard as we can to process and to be able to continue to have the bids out there for the farmers.

Tom Palmer, Analyst

Great. And then I wanted to ask on the soybean oil demand side. So we heard yesterday from a large renewable diesel operator that their plant has started using soybean oil as feedstock. There are a variety of plants either ramping production or nearing completion on the RD side. What are you seeing in terms of soybean oil demand? Is it kind of steady state over the past couple of quarters? Are you starting to see increased demand pull from the biofuels industry? It sounds like you've got some visibility at least a couple of quarters out here in terms of your book. Or are you seeing any signs of demand destruction from the food industry to offset that increased biofuels pull?

John Neppl, CFO

Yes, I can take that, Tom, to start. We haven't really seen any decline even on the food side. Energy continues to inch up a little bit as a percentage of the total refined that we're selling, but it hasn't been a dramatic shift yet. What’s more interesting is there's more demand further out on the curve for soybean oil. When you look out and typically look at where we lock in the crush going forward, there’s been a lot of interest in soybean oil pricing out beyond the next quarter or two and probably more than we’ve seen. We’re being very deliberate about what we’re willing to price when, but the demand is out there. It continues to grow steadily. We haven't seen any decline or lack of interest from either the energy or the food industry at this point. So we're pretty optimistic about the trend where we're at here.

Operator, Operator

Thank you. And the next question comes from Steve Byrne with Bank of America.

Salvador Tiano, Analyst

This is Salvador Tiano filling in for Steve. My first question is a little bit following up on the renewable fuels. The Inflation Reduction Act is kind of changing the credit structure from 2025. I think moving to a more CI-based credit as opposed to a flat amount for renewable fuels. Do you think that this will change the demand for different vegetable oils like soybean or even incentivized ethanol as an option? How do you see this changing the landscape for demand in the next few years?

Greg Heckman, CEO

Yes. All of the inflation reduction hasn't played out yet. I think mid-November, we're going to see some of the final word from EPA. But net-net, it feels friendly to biofuels in general. The other thing we're watching is canola oil out of Canada. Of course, there's a big strong demand from the food side, and that continues to work down into the U.S. but seeing if canola's up getting a pathway into renewable diesel, which would also be friendly overall demand. We'll see how all the details play out but right now feels net-net positive and expect that to continue.

John Neppl, CFO

I would just add that the lower CI feedstocks, primarily used cooking oil and animal fats, tallow, things like that, there is a limited amount of that. Ultimately, as all this renewable diesel ramps up, the one certainty that they have would be supply of soybean oil on a large scale. Everything will price probably off of CI score, but soybean oil is going to be a big supply base for the industry. To Greg’s point, canola oil finds a pathway that's good for us because we are a big canola processor in Canada and we handle a lot of canola oil. The consistency of supply to be able to provide large volume to these massive renewable diesel production facilities is going to be important. And we're positioned obviously very well to take advantage of that.

Salvador Tiano, Analyst

Okay. Perfect. I also wanted to touch base on the price of soybean oil. I mean it's more than double what it was, I guess, a normalized base, years ago. But the curve still has it going down to the 50s, I think, cents per pound by 2024. You discussed how there's more demand; there seems to be more demand emerging further out for oil than usual. Do you think that actually the prices a couple of years out can stay higher at current levels of around $0.70? Or is the curve pricing soybean oil correctly?

Greg Heckman, CEO

Well, I think as we do look at our outlook, we're not going to say we're smarter than the market. The market is the market. You do need to look not only at the future but you need to look at what the cash markets are doing. Ag markets in general are always more liquid and probably a better predictor in the 90 to 180-day market as the economics become more clear. As there's less certainty, the market reflects that at times, but the market is the market.

John Neppl, CFO

I would just add that looking far into the future, there isn't much liquidity, so it likely won't accurately indicate where things will end up. The curves have generally been inverted regarding the crush. When it comes to cash, things have been very strong as they have moved forward. It's difficult to imagine and impossible to forecast that far out. However, I believe we will see strong demand in the future. The market will adapt to whatever supply and demand conditions exist at that time.

Operator, Operator

Thank you. And the next question comes from Steven Haynes with Morgan Stanley.

Steven Haynes, Analyst

I was wondering if we could just hear your thoughts on the Brazil-China corn agreement and just any kind of thoughts on how that would impact your footprint and broader trade dynamics?

Greg Heckman, CEO

Sure. I think it makes complete sense for China to add another origin of being able to have Brazil corn available, and the corn crop continues to grow in Brazil. We believe those volumes will grow long term. We love our South American footprint in Brazil and Argentina. We'll be prepared to serve them from there when the market works. As part of a global system, we want every origin and every destination to be available because that's what's best for both the farmers and the consuming customers. That will be a positive over the long term, and we think it makes sense.

Operator, Operator

Thank you. And the next question comes from Sam Margolin with Wolfe Research.

Sam Margolin, Analyst

What I wanted to ask about processing and more on the RD theme and sort of an unusual environment going on two years now with soybeans and processing, where the oil is really carrying a lot of the value and meal is almost sort of subsidized by oil. I want to know if you think that's sustainable or if meal has to catch up and bridge and even higher crush margin? Or if this is kind of a new normal because the energy market is now such a big demand center for the commodity?

John Neppl, CFO

Yes, Sam, thanks. This is John. Oil certainly has become a bigger part of the crush. It's probably been hovering in the 45% range in terms of contribution to the overall crush, whereas historically, it was much less than that. Over time, our expectation has been that that oil will continue to be and perhaps could even be a bigger part of the crush going forward as demand increases around renewable diesel production. Meal is certainly not a laggard today by any means, and meal demand has been very strong as well. That's why you're seeing especially in the U.S. incredibly strong crush margins overall, because both oil demand and meal demand have been robust. Over time, that mix may move around a little bit here and there. Sometimes we see it get as high as 48% on oil contribution and down in the low 40s. It’s been above 40% here for a while. Could it go over 50% in the future? Maybe. Hard to predict today, but it will depend certainly on meal demand as the driver for that.

Sam Margolin, Analyst

I was wondering if I could ask for a little more detail about China since it's come up a couple of times in the call and specifically with Merchandising. You mentioned that Merchandising had a really strong fourth quarter last year, coinciding with China's rapid reopening throughout the second half of '21. I was wondering if China accounts for the entirety of your year-over-year view on Merchandising and a little more caution into the end of this year. If so, what does that mean for Merchandising if we get China reopening next year and a faster pace of demand recovery?

Greg Heckman, CEO

Yes. I think there are probably two big drivers. China is definitely one of them. They're an important part of the global demand picture. When they are slowed down as they have been, it definitely has a trickle-down effect. Yes, you've got to believe we'll get beyond the COVID policy there eventually and see demand rebound. That should be constructive. The other is just the amount of uncertainty in markets overall, things like even the corridor in Ukraine, will it remain open and what does that mean to the flows where they're coming from, from a supply and demand? This uncertainty has driven buyers and sellers to be much more spot which also is a tougher environment, I think, for merchandising. If we get some direction around some of these things, then you maybe start to see buyers and sellers go out farther on the curve and start to see maybe that demand growth out of China. Both of those could be positive.

Operator, Operator

Thank you. And the next question comes from Chris Shaw with Monness, Crespi, Hardt.

Chris Shaw, Analyst

I'm curious about the Argentinian soy dollar program that you mentioned briefly. I assume this was a factor in the lower crush volumes in Argentina. More broadly, what impact did this have on the quarter for the overall South American business and the market in general? Are there any lingering effects from this situation? I'm trying to understand how this affected the market and your operations specifically.

Greg Heckman, CEO

Yes. It definitely had a big impact. The farmer had not been commercializing their soybeans, and that had been hard on volume. What we saw with the soy dollar program was that the farmer commercialized a lot more beans than anyone expected. It allowed us and the industry to reestablish the quantities we needed for crushing going forward. That also saw them move into the export and some export of beans happened. That was helpful in the near term. Now the farmer, once they've had that opportunity, has completely quit selling. We're a little dry over there. That also will have them holding on across, but now they'll wait and see what's next. We've pulled forward some of that selling. We have positioned ourselves to crush here for a while. If you look at the replacement margins, they're, of course, not good right now. We'll see when the next wave of selling comes, and that will either be government-driven or something improving in the weather and the farmer feeling better about overall S&Ds going forward.

Chris Shaw, Analyst

When they had the program, did that then depress business in Brazil just because so much was coming out of Argentina, including exports?

Greg Heckman, CEO

There's always a little interplay between Argentina and Brazil, but that was kind of right at the time where things were tightening up in North America and the concerns about North America because of the dryness in the Mississippi River system. Some of that export that got pushed out actually filled that gap where some of that North American export may have been pushed out later. Things kind of fell in line from a global standpoint; it wasn't any careful planning. It was a little bit fortuitous.

Operator, Operator

Thank you. And the next question comes from Ken Zaslow with Bank of Montreal.

Ken Zaslow, Analyst

To touch base on the refined oil margin, can you talk about how that progresses over the next couple of years? When I think about it, I look at your baseline number of $400 million, and you're at a run rate of $750 million to $800 million. Trying to figure out how those two kind of align. It just seems like I actually think that there's a possibility that margin can actually go higher, but you're indicating that $400 million baseline. So, I’m trying to figure that out.

John Neppl, CFO

Yes, Ken, the $400 baseline was built on a premise that at some point, refining margins are going to go back to historical levels. We're not necessarily predicting that; we’re just saying that in our baseline, that’s our assumption it will. Certainly, we don’t expect that to happen in the next couple of years. In fact, I think to your point, it’s not a straight line. We do expect a pretty robust margin environment for refined oil here for the foreseeable future. We may very well have to revisit that at some point. But right now, we’re just saying that if all production gets built and S&Ds get more imbalanced down the road and refiners build their own pretreatment capability, we could see that margin decline to more historical levels. It may not; we will see. Things have been slower on the pretreatment side, and that's good for us. It gives us an opportunity to continue to get closer to those customers and work with them on alternatives other than building their own.

Greg Heckman, CEO

I think we talked a little about it, but yes, it's becoming more expensive to build pretreatment and it takes longer. That extends the cycle. We’ve talked about it; globalization is done for a period of time. How long, we’ll see. When we had a supply problem or a demand surge globally, every origin and every destination was available to solve that problem in the past. That’s no longer true based on what’s happened with the war and with geopolitical tensions. That creates more volatility; it also creates the opportunity as we have to help people solve problems, to help with food security, and all of that sustains the cycle as well.

Ken Zaslow, Analyst

When you renegotiate, my understanding is that there is a process involved. There is a negotiation process for the refined oil, and you lock it in for a certain period. Will there be another reset as you move into the next negotiation? I’m not sure if that will happen in three months, six months, or 12 months, but is there another process? How does that work? It seems like there are more opportunities.

Greg Heckman, CEO

Well, I don’t think of the fuel customers, you think about them a lot differently than feed customers or food customers. It depends on the company, whether they’re more comfortable buying spot, whether they want to lock in the overages, whether they want to lock in flat price, or how far out on the curve they are. I don't think we can generalize; it's really company by company. You’ve got business rolling constantly. Sometimes it will extend depending on their end markets and/or our markets on feedstock, where it can go shorter and be more spot or go out further. It’s kind of continually moving forward. What we have right now in the Refined and Specialty Oils side is slightly more than normal booked here in Q4, and we've got more volumes and prices booked out into 2023 than normal. That gives us some confidence in calling the at least $13.50.

Ken Zaslow, Analyst

Okay. My last question is about capacity utilization rates. Were there any regions globally where you felt underutilized? Was your capacity mostly utilized during the quarter? How do you view this situation? Your competitor mentioned some shutdowns and idling of plants worldwide. Did you experience similar impacts? I’m curious about your perspective since you mentioned operating a bit more efficiently, so I wanted to follow up on that. I’ll leave it at that.

Greg Heckman, CEO

Yes. We look at the total in global. So globally, yes, we’re proud of the total volume we ran, total capacity utilization. But sure, it can always be better. We're shut down in the Ukraine. Margins have been tough in China. We've got more capacity we could have run there if margins had been better. We’re seeing animal margins start to return there in China, so we do expect that to be better and that demand will come into '23. Then in Argentina, as we talked about, because of the farmer marketing, we had not run quite as hard. Managing some of the energy volatility in Europe, we didn't run quite as hard either. That being said, when you add it up in total, I think the way our team executed and took advantage of the opportunities that were there was fantastic. We’re proud of that, and we will continue to stay focused in what’s a very dynamic and challenging world to help people manage food security and help our customers at both ends of the value chain to be successful.

Operator, Operator

Thank you. And this concludes the question-and-answer session. I would like to turn the floor to Greg Heckman for any closing comments.

Greg Heckman, CEO

Thank you. I'd just say we continue to be proud of the team's commitment and their execution especially in light of the current market environment. We are very proud of the model we've got here at Bunge and our ability to capitalize on the opportunities. Thank you very much, and everyone, have a great day.

Operator, Operator

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.