Archer-Daniels-Midland Company (ADM) Earnings Call Transcript & Summary

Good morning. My name is Ken Zaslow. I'm the food and agri business analyst at BMO Capital Markets. First and foremost, I want to thank our panelists for taking the time to share their insights with us today. Second, I'm excited to host the renewable diesel panel. There's a substantial increase in renewable diesel demand and capacity likely we will have in ripple effect across the entire food supply chain and agri business sector for years to come. Third, we're fortunate to have 3 of the foremost experts with different perspectives on the future of renewable diesel and its implications. Let me just provide a brief background for each of the panelists. We have Randy Stuewe, CEO and Chairman of Darling. Randy has been and continues to be a visionary within the renewable fuels industry. Specifically, Darling continues to enhance its position within renewable diesel through its integrated business model, has become the largest, most efficient, low-cost producer of renewable diesel with Super Diamond Green in 2021 and DG 3 in 2024. In addition, we're fortunate to have Bob Ken to provide insights into the investment process and execution of renewable diesel. He is the President of REK Energy, a consulting firm that provides assistance and problem-solving for downstream companies as well as a Board member for Sinclair Oil Corp. To round out the group and provide perspective across the supply chain, we have Ken Campbell, President of North American Oils for ADM. With nearly 24 years of experience at ADM, Ken has deep knowledge and experience across all aspects of the supply chain, and he has had various roles across the oilseed complex. With that, I'm going to kick it off with an overview question for everybody.

The first question, and we'll just start with Ken and just because that's how I see the screen. So it will be just easier to just go in that order. How does the renewal diesel fit into the ESG trend? And how does your company play into the ESG role within that? And then for Bob, obviously, you're not in the company, but what have you been hearing from your customers and your clients as it relates to ESG? So first, let's go with Ken, and then we'll do Randy and then Bob because that's the order I see you guys.

Yes. Ken, I think for the ESG trend, it's getting a lot of attention. And to me, it goes much more broader than just renewable green diesel and the role it plays in a lower, cleaner environment. I think companies are gravitating towards this for a couple of things. I think it's the decarbonization, let's improve the planet, be good corporate citizens, but there's a lot of internal pressure from investors to -- for companies to ramp up their focus and attention around ESG. And I think what it's going to lead to is potentially higher multiples for the company. There's an environmental impact. There's a social impact. A lot of our companies have programs in place. ADM just recently launched our Strive 35, where we're really focused on greenhouse gas reductions, energy reductions, water reductions and also diverting landfill. So it's the right thing to do. I think it's going to lead to higher multiples in the future for companies that are on the forefront of it.

And Randy, if you...

Yes. No, first off, thanks, Ken, for having us, and I love to share our view on it. Obviously, for Darling, we've been at it for 138 years. And we look at the world from an ESG perspective is building a better tomorrow and finding solutions that sustain. And really, in the renewable diesel world, it's just one of our portfolio items that we're doing to make the world a better place. And if you think of the renewable diesel business, it's the conversion for us of waste fats and greases into an 80%, 85% lower greenhouse gas reduction fuel. It's a drop-in solution today. It's a beautiful thing. If you think of our core rendering business around the world, it's the largest carbon avoidance system in the world. If you led an animal out in a pasture, it would decompose to methane. Methane is bad for the environment, ultimately causing global warming. So we've married the 2 messages into building a better tomorrow for the people and the planet. And then at the end of the day, we're also responsible for making better returns for our shareholders, and I think they all align very nicely as we go forward. The ESG side for Darling, 2 years ago, I would say we were 5% held by, what I would call, ESG impact related or oriented funds. To date, I would tell you, we're over 25% home and gaining momentum. And I agree with Ken, I think long-term valuation, a sustainable solution that we're providing, it's going to lead to higher multiples and a better value for the company. It's just part of the DNA of who we are going forward.

I would agree with Randy and Ken that there certainly is an ESG component. But I think probably maybe a more immediate stronger driver are the substantial subsidies and incentives offered by the federal government and states, particularly in California. A few years ago, we saw refiners generally make agreements with producers of renewable diesel to -- for a third party to produce a product and they would purchase it, and they would use that to meet their low carbon fuel standard requirements in California. What I've seen in the last year or 2 is a change to where the refiners themselves are making that investment. Some are converting existing assets within the refinery to produce renewable diesel, and others are building brand-new facilities. So I think it's shifting from a, I'll contract with you to make it for me, so I'm going to make it myself, and that's probably driven more by the ESG component. And also with refining assets that may not be as valuable as they once were and finding a better use in the production of renewable diesel.

Bob, can we keep on expanding on that? What do you think the key drivers are to create this whole new capacity that we're seeing? And is it sustainable? How do you think about that?

Well, again, I see the immediate driver being the federal program, RINs, which is steady and constant and a good program. They also have blender tax credit, which is $1 a gallon. That is firmed through the end of '22. And then come '23, there's some question as to whether it be renewed, phased out, dropped, whatever. I think -- most think it will be gradually phased out. And then you have the state program driven by California, low carbon fuel standard. And I think the key there is that there's enough capacity announced and coming online that it probably will satisfy California's requirements, unless they continue to reduce standard. But I think there's other states that are probably going to join that, probably more on the West Coast, Colorado and then perhaps some on the East Coast as well. And there's also potential for a national program. I think when that happens, the lid's off and it's going to be a substantial increase in demand for these types of fuels that are low carbon intensity.

Randy, what is your take -- what do you think the progress among the government roles have been? And where do you see all these -- the West Coast, Colorado, New York, and what are the milestones that we're looking for? And where do you see that going given that you have a good handle on all that legislative issues as well?

Yes. I think I have a little different view than Bob on it. I would tell you that renewable diesel is a global business today. While California may be part of the narrative, it's really not the narrative. It's a North American, it's a European business with demand equal on multiple continents today and growing. The momentum underneath this is, is you have a drop-in solution today that can reduce greenhouse gases immediately. Climate change, no matter what your perspective on it, is absolutely real in the sense that population is growing, industrialization is growing, and therefore, a solution is needed. So as we go forward, while California may have gotten the main narrative, you've got a little bit in Oregon and Washington, not enough to be meaningful. You're going to have a national program in Canada that could move up to nearly as large as California today. You're going to get a Northeast program that could be 1/2 to 2/3 the size of California. And then you step offshore and the programs are even larger than that, that are being driven by the Scandinavian countries and also on the continent. And what's fun about this, as we go forward, we're talking heavy industrial road transportation fuels today. And ultimately, the narrative that's being developed out there right now is we've embarked now on sustainable aviation fuel, and that's in its infancy right now. I mean, I think it's fairly easy to say that you're not going to put a battery pack on an airplane and plug it in. So ultimately, as we go forward here, we're just at the start of the global demand for this product as we go forward. How the industry evolves and who's going to be the low-cost player when the assets in the right place, it will -- long term, that will play itself out. But in the near term, it's pretty obvious to us. Demand, it's there. It's very transparent to us on out to 2030, and then we'll see where we go from there.

Are there any milestones that we should be playing out just to see -- you said you mentioned Oregon. You mentioned Canada. You mentioned Northeast. You mentioned Scandinavian countries. I didn't write as quickly as probably you said it. But are there milestones that we would be looking for or introductions in legislation that we would be able to track? What do you think?

Yes. I mean, Ken, that's -- really, if you call, that's the challenge for the marketplace to either understand or digest renewable diesel. I mean, clearly, California has been very transparent about the step-up or step down in demand there. Oregon is out, Washington is out there. Canada has a national program that is on the desk, if you will, in Ottawa today. And so I think that's the next big stone to haul here, if you will, in the next 18 to 24 months. After that, you're looking at the Northeast. If you take the tri-state area of New York, New Jersey, Pennsylvania, that's the second most industrial-heavy transportation area in the U.S. Those discussions are beginning. We're at the table. We're helping people craft. I think it will look very similar to California, but I still think it's a couple years out. So as far as direct milestones announcements, no, you've just got to watch it develop over the coming time here.

Ken, I suspect that you've had some conversations with your -- with refiners and new entrants coming in. What are they saying? And are they coming to you? How many conversations are you having with them? Is it -- has it accelerated over the last couple of months? What are you seeing out from your -- because everybody is going to be needing some -- either soybean oil or some feedstock from you as well. What are you hearing from your customers?

Yes. They're all chasing the same thing, right? It's about feedstock and feedstock supply security. And we've been embarking and having conversations with merchant refiners and petroleum companies for over 1.5 years now. During the pandemic, I was quite actually surprised in terms of still the high level of interest from a feedstock perspective as we think about maneuvering through the pandemic and all the announcements that have been made. I think part of it early on was, it was a bit of -- we're going to build it and it will come mentality. And I think that when you are accustomed to pulling something out of the ground for 10, 15, 20 years. And then thinking about the supply of a feedstock where you've got weather to deal with, you've got growing patterns, you've got farmer decisions. There's a lot of volatility, and the supply isn't maybe as secured. So we've been looking at it from an opportunistic standpoint. We -- this is something we participated in. We have 4 biodiesel plants. We're a feedstock supplier to some of our strategic customers in the biofuel place. That's a market we'll always participate in. I just think that for us, this renewable green diesel topic has really been, for ADM, a catalyst to get even closer to our food customers, Ken. And we've got a dominant position in oils globally. We have a dominant position with our entire portfolio. And then you think about our food customers and all the pantry of ingredients that we have with Carb Solutions and the platform we've built out with our Nutrition business over the past 6 years, the real benefit to the enterprise is key account management, innovation and cross selling the portfolio, which all ties to renewable green diesel being a catalyst for that.

Great. Bob, and anybody who wants to add on to this as well, what do you think the return characteristics of the new capacity is? And how does it differ for new entrants and refiners? And then kind of just -- kind of adding to that is, what do you think the key determinants to determine the likelihood of success is? If that -- if you go through those questions, that would be great.

Yes, I'm going to put it in 2 buckets. For people that are building a new grassroot standalone facility, with the blender tax credit, I think they have a very high return using feedstock like soybean oil. I think what they're contemplating down the road, those perhaps competition heating up for soybean oil, prices perhaps going a little bit higher, whether or not the BTC continues or not. And so they're also looking at diversifying their feedstock, moving into a lower carbon intensity feedstocks that, frankly, are lower priced currently and also offer you a higher LCFS credit from California and other programs that are modeled on that. And to do that, there's a little additional investment needed, a cleanup step. But all in all, it's a very high-return project. For a refiner, if they have the right hardware, which is typically a large hydrotreater or large hydrocracker, the conversion cost is surprisingly inexpensive, and the time to do is surprisingly short, i.e., less than a year. So it really comes down to what's the alternative value of the refinery. If the refinery is viewed as not profitable or breakeven, you'll pay for your conversion cost in a matter of months. If your refinery is profitable, then you have to compensate for that as well. And I think that's why you're seeing at least a handful of refiners announce refinery closures and converting their refinery to renewable diesel production. It's driven by economics, I think, and also the benefit of an ESG impact on your company stock price and multiple, as Ken mentioned.

So this is opening the question for whoever wants to answer it. There is a planned 4 billion gallons of incremental renewable diesel capacity by end of 2023. Is there a view that more or less than 50% will be produced, 100% will be produced? How much do you think this is going to be produced? And obviously, this is -- I expect some ranges of answers rather than an exact percentage, but any sort of thoughts would be greatly appreciated.

Yes, I'll go first, Ken. A little different view than Bob has. Obviously, he's a petroleum expert, and I respect that. The reality is the economics for a freestanding refinery-converted facility running soybean oil that's out of position and then ahead of the California with having the run refined bleached soybean oil, or RBD, and then having a carbon intensity score in the 50s versus the 20s, you're somewhere between $1 and $1.50 a gallon disadvantage on day 1. So the economics aren't real compelling to make that capital play. But even with the BTC today, yes, it can make sense. No BTC, it's just out of position capacity going forward there. So that's number one view. Number two view, this is a very complex process. We've been at it for 10 years. We noted a few in the world that have got it right, really don't want to tell you what we got right, what we got wrong. But I can tell you all paths aren't created equal and everybody is going to learn that eventually. And so at the end of the day, just a slapping in what's called a pretreat and partially treating, and that's maybe 10% of it. So very, very complicated from that standpoint. Then you get to the next level of what I think will be built. We spend very little time around Darling and Valero, worried about conversions and what other people are going to do because, ultimately, you spend your time saying, "If I was to build one, what's the optimal location to have it?" We've built the 2 facilities on the South Coast now in St. Charles. It will be up this year this fall, up to 700 million gallons and then about 1.5 years later up at 1.1 billion to 1.2 billion. So I can guarantee it, that's 100% real. The Marathon plant up in Dickinson, Ken might have to tell us a little more about what's going on up there, but I think they found out the process is a little more complex than originally thought. The rest of the capacity out there really hasn't pushed dirt yet. And so at the end of the day, if it comes on, it won't be 2023. It maybe 2024, 2025, and then you're dealing with the unknowns of the government programs, the carbon intensity issues of your margin structure. So we kind of look at it and say all we can worry about is first-mover advantage. We've got the customer base. We've got the global demand, and we've got the integrated supply chain in waste fats and 10 years of knowledge to bring us to the forefront.

That's great. Just -- let me just go back to Ken for a second. What do you think the Biden administration and Republican-controlled Senate and Democrat-controlled House, how does it all play out? How does that happen to the renewable diesel? And how does that play -- what do you think the policy of the new government, assuming that President-elect Biden does actually take office?

Yes. I -- it's going to be difficult to predict what that looks like, right? The Senate's got to play out. I think it's going to be really difficult for Congress to do anything meaningful. I don't expect a lot of administration. I think it's fair to say that the Biden administration is going to be focused on climate change. That means a lot -- there's a lot to that, which should support the RFS, which is clear on volumes as the law intended. And I think lastly, we're going to potentially see more of these wider states adopting a similar California program. So I think the Biden administration is going to be supportive for climate change and what it does for renewable green diesel and biofuels.

Bob and Randy, anything to add to that?

Yes. I'd like to go back to the capacity question. I think there's a number of refiners that have announced plants, Hollyfrontier, CVR, Phillips 66 and Marathon on California, I think those 4 are virtually 100% certain. I think there's a number of third-party plants that are, frankly, struggling a little bit with getting their financing. But I believe, at the end of the day, they will get it. So I think 1/2 or 2/3 of that 4 billion gallons is likely to be built. I would agree with Randy. It may not be quite as quickly as people think, but I think it will happen eventually. I would also maybe just offer that I participated with refinery conversions, and the payouts are less than a year. And the time to do the conversion is less than a year, and there is a learning curve on the operating side. And so maybe your first run is not going to be quite what you expect, but people learn quickly and they adapt. So I think it's a relatively straightforward conversion with a learning curve, but it works and it's being done. So I think it's highly likely these refiners will do what they said they wanted to do, and the economics are outstanding, frankly.

Okay. Great. What do you think -- again, going to each one of you guys, and I'll go in the order -- go back -- go Ken, Randy, Bob again. What is the largest barrier to entry into the renewable diesel production. Ken, if you could start off. Then we'll go to Randy and then go to Bob.

Well, I'm not here to get into a debate about what the returns are, obviously. Randy and Bob can speak to that a lot more eloquently than I can. But the limiting factors to me are large capital outlay, permitting issues. And obviously, the easy one is the feedstock supply. And I think, ultimately, there's a bit of posturing here, too. I think some of these companies are making these announcements just to kind of check the box on ESG, so we'll kind of have to wait and see what that looks like. But feedstock to me is going to be the limiting factor. Obviously, there's a huge amount of focus and attention around low carbon intensity feedstocks. I think Darling has got a fantastic model. I think the North American market were somewhat very efficient in terms of how we aggregate low CI feedstocks. I think the question remains and the market needs to sort out is what does it look like from a global perspective. Are there untapped opportunities for further aggregation in Southeast Asia or China or LatAm? And I think that potentially could satisfy some of the new demand. I think soy will satisfy some of the new demand. I think oil, like canola oil, which is in the process of getting improved pathway, is also going to satisfy some of the demand. So it's really going to be -- the market channels are going to change. Trade flows are going to change. It's going to be definitely beneficial to ag services and oilseeds within the inside of ADM.

Yes, Ken, and I would echo, I think, what Ken Campbell said is really spot on to -- it will be an interesting time as we develop here. I mean, ultimately, in the decision here is the supply chain and supply chain management, I mean, if we look at the development of renewable diesel, I mean, we started on it in 2009. We started on it as a method to fulfill the renewable fuel standard with a product that, I would say, our customers want it. And when we say our customers, it's not the the '72 diesel, Mercedes diesel, it's the big oil company because of the fungibility, the transportability, the pipeline readiness of renewable diesel. And so our first 5 years were geared at supporting the road fuel business through the pipeline and then on comes the low carbon fuel standard. So when you look at one of these facilities, the greenfield side, and we will -- we have engineered and we've built 2, we're getting ready to build the third. So we pretty much have a good feel for cost. We're between $3.25 and $3.50 a gallon if you've got shared infrastructure. So it's a big capital outlay. But ultimately, as I looked at it, and Ken Campbell, I go back to the veggie oil days, and the solid oil business is going to get wonderful here. You should enjoy that finally again. So at the end of the day, feedstock is going to be diverted, and this may mean people may have connected the dots, maybe they haven't. But Generation 1 biodiesel, from my perspective, I wouldn't want to be in that business. And we are very little from the standpoint that, ultimately, if you say 30% to 40% of the biodiesel in North America today is made from waste fats and greases, those margins today are near 0, if they're not negative today. And so very quickly, if you look at that -- at renewable diesel today, with $1 a gallon, we're about $2.25. And ultimately, feedstock into that business today is about $0.40 a pound. So we've seen a nice rise. We've kept the margins. But yes, biodiesel have set us somewhere between, if you say, out of the 2.4 billion gallons, 700 million gallons, 8 -- 7.5, 8 pounds a gallon, there's 6 billion pounds of feedstock that will be available in renewable through renewable diesel if we get into a competition somewhere down the line. It will always take longer than you think it will, and people are more resilient, and they have longer staying power than what a spreadsheet says. But that's ultimately where the feedstock comes available. And then as Ken says, ultimately, we saw a lot of used cooking oil available from China here in the last year. Well, what's interesting now was when palm oil got cheaper than soybean oil, which we all know it really wasn't used cooking oil, but at the end of the day, the aggregation of feedstocks from South America, Australia and Southeast Asia, and the 0.5 million tons we sit on in Europe today become available to the right located renewable diesel producer in North America.

Yes. I would say the barriers to entry for the third-party independence is probably financing, and I think the people doing the financing probably have concerns over feedstock security, particularly if they're dependent solely on the high-quality soybean oil. I think for the refiner, it's probably more of a feeling of is this a trend, is this a fad that may go way someday or is it a long-term trend that's just beginning. And I think they're coming to the realization it's the latter. And I think their concern should be what's the alternative value of the refinery I have. And again, I think feedstocks are always a concern. I think you have to recall that the hydrocarbon business is several orders of magnitude larger than the plant and -- plant, oil and animal oil currently produced. So for -- at some point, we're going to run into a feedstock issue, and I think the question may be, how does the plant and animal oil industry respond to that. Well, there being kind of an ethanol-type revolution with corn where productivity increases and yields increase, and I think there's probably a good chance that will happen driven by the demand. But I think it's financing to third parties, a concern as to whether the trends are real or not for refiners. They tend to be a little bit old fashioned. And I think for everybody, it's feedstock.

In terms of the feedstock, Ken, can you help us understand what will -- how will ADM respond to this? Will there be -- will you start building more capacity? Will you be sourcing it well? How do you -- from that part of the supply chain, I mean, you're a critical link to the whole renewable diesel. What are your plans? How do you handle the shortage? I know you'll enjoy higher prices, but that's not your final answer, I'm assuming.

Well, listen, Ken. This is nothing new for us. This is not a new process. We always are reviewing our footprint. We're always partnering with research and development, thinking about how we can make our plants more efficient, how we can optimize them, increase the quality of our products, think about yield enhancement. So we've been doing this for a number of years, right? And I think now, as this ESG agenda, renewable diesel plants start coming online, it's really an opportunity for us to, one, take action with our refineries, right? There's quite a bit of crude oil or crude degummed oil that gets exported out of the U.S. market. I don't -- I'm not implying that, that goes to 0, but I think that, over time, that's going to whittle away and probably be consumed domestically. I think the other thing that the industry is going to address is unlocking capacity at refining assets, right, which then what -- in essence, you're doing, you're monetizing that crude, soybean oil or crude degummed soybean oil, so you've got the toggle to almost a finished refined product where you can satisfy your food customers' demand or potentially satisfy the demand of renewable green diesel. So I think it starts with the refinery unlocks. I think the other part of this is, is looking at how we can incrementally move the needle on carbon intensity scoring from our elongated value proposition, going back to the farmer, where we can influence farming practices -- sustainable farming practices, where, actually, we become the bridge between the farmer and our customers. So there's a lot of ongoing activity inside of ADM, which is going to be a net benefit for us.

Do you think there's a possibility to have more canola oil? I know canola oil is not a U.S. product, but is there a possibility that we could bring some production to the U.S.? Is there other possibilities? Or is that slim to 0? How do you kind of play that? How much from that add to the supply of feedstocks?

Well, I think just from an economic standpoint, right, crush -- soy crush is built on the backs of protein demand, right? Oil is typically the byproduct. Higher-bearing oilseeds like canola, the economic driver from a margin perspective is the oil itself. So again, canola oil is in the approval process for a pathway. I am confident that, over time, that we're going to get that approval. And then from there, we're going to have to see how the market reacts with existing trade flows and diverting those streams into the U.S. market.

Randy, I'd be remiss if I didn't talk about your competitive advantage on getting feedstocks, and I want to make sure that gets out there. What is your competitive advantage? How do you do that? And how does that relate to the carbon intensity scores?

Look, a couple of comments here. Number one, I just want to echo something Ken said -- Ken Campbell. I mean, at the end of the day, I mean, we're just not going to crush more beans to make more oil for renewable diesel because you've got to get rid of the other 48 pounds. So ultimately, you're going to -- if the capacity is built, the lines will cross, there'll be some type of food versus fuel argument somewhere down the road, unless some of these heavier royalties of canola can come in. For the waste fats increases, I mean, clearly, the Darling system is built around 200-plus factories around the world, bringing waste to a factory converting it into proteins and fats. And so clearly, the advantage there is, number one, we're the largest in North America. And number two, we're largest in the world, and it gives us the ability to not only aggregate and bring, as we said, cargoes, from offshore into New Orleans or into the Houston ship channel as we go forward. But it also allows us to partner with our farmers and our producers around the world and create better value for them and help the U.S. and North America and Europe heat production systems even become more and more efficient. I mean, what's interesting is when you look at the fats and oil prices 3 months ago, we were $0.12 a pound lower. 3 months ago, the margins in Diamond Green Diesel were $2.25 a gallon. Today, we're $0.12 higher and the margins are still $2.25 a gallon. So there is an inelastic demand for this product today. I think a different way of saying it is we're selling a compliance product around the world, and those margins continue to be very strong as we go forward. And our supply chain is extremely resilient. What's interesting when people start talking about saying, I'm going to build up 66 in California, I'm going to rely on waste fats and oils, and I'm going to bring used cooking oil. Well, California is probably the lowest production side of waste fats and oils and the most expensive place to get them there. And ultimately, you're originating, you have to have your own tank cars, your trucking fleet. These are products that are just not -- you can't call -- I could call Ken Campbell up and buy a 100 car unit train of soybean oil, but you have to aggregate 1 or 2 cars of animal fat at a time. So it's a whole different business when it comes to scale here than what most people understand today.

And Bob, are there any potential technologies, if introduced, could relieve some of the supply pressure for any of the inputs over the next 5 years? And your customers, clients and what you're hearing, do they think they'll be able to source some of the other feedstocks besides soybean oil? And what is the method to which they'll be able to do that? There's a little bit of discussion on that.

Yes. I'm going to agree with Ken and Randy on that topic. What the refiners will do is they'll put in a good cleanup facility, so they're capable of running a multitude of feedstocks and maybe some of the lower carbon intensity, lower cost feedstocks. Collecting it, that's going to be an issue for them, and I don't see them doing that themselves. I'm seeing them relying on third parties to do that. That's not a case a refiner has. I mean, we're used to dealing with a ship that brings 500,000 barrels of crude oil to your dock, or a pipeline that delivers 100,000 barrels a day every day. Bringing feedstocks in by rail is unusual for a refinery. It's not the economy. It's not the scale we're used to. Soybean is seen as, yes, that's a problem bringing things in by rail, we make good work. And I think Randy's point to, if you go further down the chain and are looking at fats and byproducts, it becomes even a greater competition and more difficult. That's why I think they worry a little bit on feedstock, where is it going to come from, will the volumes be there, upward, backward, do we have to integrate to ensure that we'll have our supply, and I think those are yet to be answered.

Ken, I'd just like to maybe add to it. I think the market always tends to underestimate the ability of technology advancements. And if you think about seed technology, genome editing, CRISPR technology, I firmly believe that the bean of the future could look a little bit different than the bean that we're processing today in terms of oil content, that's first and foremost. I think that there's another untapped opportunity and really in question is how scalable are cover crops and what does that look like to address the demand in renewable green diesel. And I also think about current vegetable oil refining today and the waste products like soap stock and acid oil, which could be interesting from a pathway approval process to satisfy the demand, too. So lots to think about, but I think that, over time, there are going to be things that look a little bit differently in the future than they do clearly today.

Do you also think -- just staying on that path of oil -- veggie oil, do you think that palm oil is a potential solution? Do you think rapeseed oil is a -- I know we talked about canola, but what about those 2 options? And how does that play out? And is ADM either thinking about maybe expanding capacity in soft seeds outside of the U.S. and shipping in? Can you just talk about those kind of dynamics? I think it's an interesting potential.

Well, I think it's an opportunity for ADM to flex on our capacity that we have that exists already in North America and Europe today, whether we crush more soybeans or more canola or rape. So we've already kind of got that toggle. To your other question about palm oil, obviously, palm oil doesn't meet the 20% greenhouse gas reduction, so it's got a bit of a black eye. I think the big question is, what does the food customer do? Do they lean towards more palm? It's abundant in supply. You've got some issues with some bad actors in that part of the world when it comes to sustainability and labor laws. But I think, going back to the customers' preference, it really comes down to the application of the veggie oil and the functionality and the taste profile. So we'll have to see if there's a major shift there. Palm oil is interesting to me as a replacement in feed rations. You still have to satisfy that demand. But if I'm the poultry producer or the hog producer, one of my rendered fats are actually going out into the marketplace to satisfy renewable green diesel, but a good portion of them are going back to the feed mill. And at some point, the market is going to pull those away from the feed mill, so what the feed rations of the future look like.

Okay. And then just a quick question on biodiesel, and then we'll wrap up with one more question after that is biodiesel, do you think we will lose a material amount of capacity there in order to supply the renewable diesel industry? Or do you think that they will become resilient and the dollar biodiesel tax credit will keep them kind of in survival mode? I will ask anybody who wants to join in on that, that's a pretty open-ended question, and I think you all probably have an opinion.

I can jump in. I agree with Randy's comments. I think, as the renewable diesel plants get built and the competition for feedstock heats up, I think the biodiesel people may be at a disadvantage. The quality of their product isn't seen as high as renewable diesel. And I just think when you're competing, you probably have some disadvantages compared to the renewable diesel people. So I think maybe in a number of years, that might be a more difficult business.

Yes. And I think -- Ken, this is Randy again. It gets to be an academic intellectual discussion. But ultimately, gen one technology moves away, it doesn't mean that renewable diesel doesn't fulfill the renewable fuel standard. And so while we're all talking low carbon fuels, it doesn't mean that soybean oil base with a higher carbon intensity doesn't support the renewable fuel standard demand that was being satisfied by waste fats and greases and basic biodiesel. Ultimately, you have to look at the whole margin structure around that business today. As I said, biodiesel, plus or minus, a little bit positive or negative depending on your location and your supply chain. But yet, renewable diesel, in the mid- to low $2 a gallon a day went $1 a gallon. Biodiesel is at $1 a gallon a day, and it still can't be profitable. So it's really passing as we go forward. Also,as you move forward then, if you start replacing classic biodiesel with renewable diesel in the transition, then, ultimately, you're going to generate instead of 1.5 rins per gallon, 1.7. So then your margin structure then starts to change. No one here at Darling or Valero will tell you that we believe these margins will last forever. This is a beautiful thing right now, a first-mover advantage. Ultimately, they'll move back to some type of commoditization of that product as people build out capacity, if it builds down, and margins compress a little bit. But at least in the next 2 to 3 years, it looks pretty darn good.

Ken, just a couple of comments. I think, of course, feedstock will potentially get diverted to renewable green diesel. I think the longevity of generation 1 biodiesel really hinges on post 2022 and clarity around the blenders credit. And I think that's what the industry needs is just some level of certainty, whether there's a phase down period post 2022 or no more BTC. I also think, with our position, we've got 4 vertically integrated plants, so our cost position is a little bit more favorable versus a standalone independent. But I think the longevity of generation 1 biofuels really depends on how Midwestern states and the Northeast react to similar LCF programs because, depending on how the renewable green diesel is set up, if they've got the downstream distribution and that market channel, I have to be thinking about how can I blend and extend and capture additional margin with my renewable green diesel and blending biodiesel with it because, today, it makes economic sense.

And my final question is, obviously, the renewable diesel industry capacity expansion will likely create structural benefit. What businesses outside of renewable diesel -- Randy, I know you alluded to the yellow grease and the fats. Ken, maybe the oilseeds. But let me just take it one by one. Let's start with Ken. Let me -- what do you think the benefit will be? And how much will be felt? And how do you think about that? Starting with -- I'll start with Ken.

Yes. I think, obviously, it's really about the oil story, and we've talked about this oil story for the last 6, 7, 8 years. And really, the oil story to me really started kicking in, in 2019. In Q4, you had one major come online in the United States. So 2019 was our breakout year in terms of North American refined oils. There's a lot of good innovation that was happening with our food customers. I think the structural setup that we have to think about lower carbon intensity scores of our vegetable oils, the sustainability component, making smart and prudent' investments with our refinery assets, Debottlenecking while it makes sense, I think that these are things that we'll be able to continue to address and capture.

And Bob, what's your take on it?

I'm 100% with Ken. I think it's going to drive innovations in the production of plant oils. And like you said, maybe some genetic modifications to increase yield.

And Randy, I just wanted to finalize with you and what you're thinking is on which businesses will benefit, particularly within your organization.

Clearly, our portfolio of animal-based oils are going to finally get the respect they deserve since McDonald's got away from frying their french fries in our wonderful product. So we are really long-term bullish about low carbon intensity fuels. I think, ultimately, you're going to see some fun stuff develop with technology over time. When we talk about separating naphtha into -- in the plastics now, green plastics, we're looking at and also into the aviation fuel. So I think the whole system is going to drive a lot more innovation as we go forward. And ultimately, the petroleum industry has gone through a really difficult time here with the collapse of COVID. But if you're long-term bullish back to $60, $65 a barrel, that once again changes the dynamics out there. It even makes the renewable diesel business look pretty darn strong for the freestanding independents like ourselves.

Actually, I lied. I'm going to ask one more question. So just a number of questions, sorry. On a scale of 1 to 10, how much do you think renewable diesel will change the future? On a scale of 1 to 10, I just need a number. Go ahead, Ken. Let's start there and just -- and we'll end there.

7.

Bob?

I think to the refining industry, maybe a 3. I think to the plant and animal oil production, probably an 8 or a 9.

And Randy?

From a guy that took the company over $0.65 a share, it's a 10.

That's what I figured. Thank you, guys. It's been honestly a pleasure. Thanks, everybody.

Hey, good afternoon, everyone. We have Ray and Alison. We're so glad that you both are here to discuss the overarching role of sustainability for ADM. Ray, as CFO, you've been instrumental in effectively and structurally changing ADM's identity in terms of the capital allocation, efficiency, culture and product mix. ADM has better prioritized capital towards growth initiatives and cost efficiency programs. And Alison as Chief Sustainability Officer for nearly 4 years, who continue to position ADM to have a social and environmental impact on a global scale. In fact, under your leadership, ADM accomplished its 15% reduction goals a year earlier than expected and now has set out its Strive 35 plan, which sets ambitious greenhouse gas emissions and energy intensity reduction targets by 2035. Previously, Alison had been Vice President for Sustainability at Siemens and served as Chief Counsel to the U.S. Senate Environment and Public Works Committee. Welcome both of you guys. Thank you both for being here for today. With that, I'm going to turn it over to Ray for a few introductory comments before we head right into the Q&A.

Hey, Thanks, Ken, and good afternoon, everyone. It's good to be here for this -- for sustainability and growth conference. And for us, at ADM, as you know, our purpose statement, as you know, is really about unlocking the power of nature in order to enrich the quality of life. So when you think about sustainability, it's actually core to our existence here. And so when I think about us being one of the largest nutrition companies in the world with more than 800 facilities around the globe, the aspect of really driving sustainability as part of our growth strategy, as part of our long-term plans, is just fundamental in terms of what we do in our existence. We do take our roles very seriously in terms of feeding the world. In fact, when you take a look at the pandemic, COVID-19, what happened this year, I think we're extremely proud that we're able to kind of keep the global food supply chains moving, keep our colleagues safe and continue to serve our customers in the midst of this pandemic. And in the midst of all this, we're delivering great financial results. And we are having a great year this year in terms of profitability. And probably more importantly, I feel proud about all the fundamental improvements that we've done in this [indiscernible], frankly, will contribute towards the fundamental earnings power of this company going forward here. So I'm very, very proud of all this. We're actually executing very well this year. We continue to advance our long-term priorities, and the area of sustainability is one of these areas here. So I'm very proud to introduce Alison Taylor, who we brought on board as the Chief Sustainability Officer of ADM. And so -- and she'll make some introductory comments before we go into Q&A. So Alison, please?

Thanks, Ray. I'm looking forward to the discussion today. In my about 12 years as a Corporate Sustainability Officer at Siemens and ADM, and prior to that, about 12 years on Capitol Hill, it's been a really interesting journey from focused on environmental compliance and laws to issues like climate change, which are certainly broader longer term to the kind of discussions we're having today about the company's role in society and tackling the bigger issues like zero hunger, like climate change, that no one company can really accomplish alone. Mature companies, and I would say that's where ADM has come, are embedding ESG in strategy, as Ray said. So not just a separate sustainability department with separate initiatives. But really, the company is thinking about sustainability and strategy and all kinds of decisions and certainly in the commercial opportunity space as well. So some examples of how we're doing that at ADM are with respect to governance, with respect to our planning, with respect to operations and also some of our commercial activities. Governance. We have a sustainability committee of our Board of Directors. Five of our directors are on this committee meeting quarterly, deep diving into sustainability issues and providing strategic guidance, asking good questions, giving us that leadership, but also their perspective from outside of the company. And we're pretty unique in that regard. It's something that I think really shows the level of interest and also leadership that we're really demonstrating in the ESG or sustainability space. With respect to our planning, sustainability is in our 5-year planning. Our business leaders incorporates sustainability into their objectives. It's a part of our capital planning, and we have processes so that we're evaluating capital projects and expenditures in terms of their impact on our sustainability goal. It's in our R&D spending, our innovation spending, in our technology investment plans as well. As with respect to our operations, as Ken mentioned, we have just launched our next generation of environmental goals. We call it Strive 35. And that is building on our success in our previous generation of goals, which was called 15x20. And this will be the way in which we bring the company together to find ways to increase our environmental stewardship to reduce our environmental footprint in water and waste and energy and greenhouse gas emissions. We have a very specific feasibility study posted on our website, specifically oriented to the greenhouse gas emissions plan. I don't know many other companies that are actually putting the pathways that they're going to follow to make those reductions into the public realm. And with respect to our commercial activities, we're very oriented to looking at our special position within the agriculture value chain. And I say special because we're the link between the consumers, the customers that are serving those consumers and our producers, the producers who are so instrumental in those customers making their sustainable agriculture goals and objectives. And so we're doing quite a lot of work in sustainable agriculture, which we'll talk a little bit more about today. We look forward to the discussion, Ken, and I'll turn it back to you.

There's been a great deal about sustainability and its implications. What I'd like to tackle over the next 30 or so minutes is the concept of and the interaction of sustainability on 3 levels. First, the sustainability of agribusiness operating environment; second is sustainability of ADM's earnings from internal structural business and strategic changes; and then, third, ADM's role in the sustainability of environment and social responsibility. So we're actually going to start in reverse order. Our view on ESG for successful companies is being able to manage ESG broadly and meet a threshold, then differentiate in 1 or 2 areas. With that, does ADM have some 1 or 2 areas that was really -- that you look to differentiate, maybe call it superpower or something that really differentiates you from the pack? And what have you developed around those strengths?

Maybe I'll just start first, and then I'll turn it over to Al. I think the way we think about that, Ken, is like we want to take a look at sustainability from a holistic perspective. So it's not like cherry-picking certain areas whereby we're going to excel and then the other ones would just be kind of meet threshold levels. I mean that's not how we think about it. So I'd just like to maybe ask Alison to talk about our holistic view towards ESG. So Alison, please?

Yes. Yes. So that's right. I mean a lot of companies are looking as we are at the table stakes. And so that's part of the whole [indiscernible] what are we expected to do. As I said, we're expected to be stewards of the environment, particularly important for our company dependent on natural resources like we are. We're expected to be transparent or expected to be carrying out traceability. So we know where our supply chains are located, and not only that, the practices that are happening on the farm. We're also expected to look more broadly in ESG into the social dimension. For instance, diversity inclusion, talent retention. We're supposed to be looking at innovation opportunities as well. ESG is multidimensional, obviously, by definition. And I think while a lot of companies like ours are doing, looking not only at risk mitigation, but also where are the opportunities where our core competence really differentiates us and puts us in a different category. And so I'd say those superpowers, as you mentioned, Ken, would be our connections to both sides of the agriculture value chain, that connection between the producers and our consumers and customers, as I mentioned, and specifically working in those deep relationships that we have with farmers. And our second super power would be around plant proteins and our ability to not only innovate and put such an important growth strategy into the marketplace, but that's such a great sustainability story because there are alternatives to meet. They're better for the planet, but also there is nutrition value that gives customers choices, and that's really customers globally as well. So that helps us to further progress on the zero hunger goal that's important to us.

I think, Ken, you may be on mute. You may be on mute, Ken.

You are.

I think you're on mute, Ken. You're on mute.

Keep on doing. I think they keep on making -- sorry about that. When you think about sustainability objectives, how do you -- like when I think about it, can you talk about your deforestation efforts, what your objective is, how do you include your customers in that? Also, the carbon footprint side of it, what efforts are you making on that side?

So our deforestation efforts are really very important to us. It's certainly a material issue to the company, something that our customers definitely expect us to be drilling into. We've had a No-Deforestation Policy since 2015 published on our website. We're actually doing a refresh of that policy. I think good companies are always looking to see whether their policies are cutting edge. That policy covers all of our supply chains. And so there are some challenges, certainly with supply chain if it's as sensitive as ours to be drilling into third and fourth tier suppliers, and we are doing that work. We hold our suppliers to our standards. They're aware of our No-Deforestation Policy. And I think what's very important for us, and somewhat of a differentiator is our usage of technology. So we use satellite imagery to monitor our supply chains to see that we are sourcing from areas that are deforestation-free. And we also report biannually, at least on our website, about how we're progressing with respect to traceability in our supply chains, drilling specifically into soy and palm, big volume and bigger risk for deforestation. Carbon footprinting, also an area where our customers are expecting us to be making progress. It's important to us as a company as well. We can also see cost savings from energy efficiency measures, of course. But the carbon footprinting is a part of our walking the talk and our being responsible for our part in mitigating climate change. So as I said, we have a very specific feasibility study. It lays out the pathways that we can take globally. These are global goals, to reduce our carbon footprint. We already have a carbon capture and storage facility in Illinois. We can deploy that in a bigger way. We can look for new technologies, maybe battery storage technologies and hydrogen technology, some of the cutting-edge things that could be usable to us at scale. And we're also experts in biomass. We already use biomass, and we can go in that direction to a greater degree. So we're demonstrating our ability to reduce our footprint, but also demonstrating that in a credible way, not greenwashing. We studied this for a long time, and we expect to meet our goals.

And then how do you know -- how do you set your goals? A lot of these companies have talked about goals, but how do you know your goals are aggressive enough or not too aggressive? Like, how do you come up with the goals? Where do you derive them? And what happens if you miss them?

Yes. Yes. So for us, the process started internally where we have a lot of expertise about our facilities, of course, and we have smart energy engineers and environmental engineers who are responsible for our plants every day. So we started internally with a challenge to reduce our footprint as much as we could in the next generation. As you know, we're building on the success of our first generation of goals. And then we asked an outsider to -- an outside consultant, a professional to come in and challenge us and to verify our work, but also to ask us tough questions. And so it was a 2-part process and a very, very effective process, over almost 1.5 years. So prior to the expiration of our other goals, we were already working on the next generation of goals. And as I said, that feasibility study weighs out a pathway. It's not just we hope to get there. It's not completely aspirational. Overall, it's a [ addressable ]. We have a number of processes in place to make sure that as we are making decisions, acquisition decisions, capital spending decisions around the company, we are definitely looking at the impact on those goals, making sure we don't backslide. And if you miss the goals, well -- and as you know, some companies have, I think, actually, most stakeholders realize aspirational long-term goals have maybe not the most linear trajectory because the world changes and COVID and unexpected things happen. I think when a company is showing progress and transparently reporting that, particularly on the annual basis like we do, in a variety of ways, then stakeholders see that the company is serious about this, and they see that there's progress being made. Like I said, I do expect that we will meet our goals, but I think credibility, transparency and information about how the company is getting there is really what stakeholders are looking for.

Are there any natural limitations to the extent to which ADM could be ESG compliant? Is there just limitations? And is there a misunderstanding in the education process that needs to be furthered to ensure that ADM is not pigeonholed into a certain ESG framework?

Yes. Yes. Well, I think that because we do have impact on the land as well as dependency on the land, I think that there are tough questions that we are asking, we should be asked about our stewardship and how seriously we take the sustainability programs. I believe that now that our sector has really stepped up to put more information out there and to put aggressive goals into the public realm, I think that we're [ equipped ] with a lot more credibility. We're certainly competitive in terms of the scores and the rankings and the ratings that we see, even some of our customers are achieving. And I would say that's another important proof point to us. When our customers are coming to us and saying, we want you to partner with us. So there's a lot of opportunity for that in the agriculture value chain. We can't do this alone. Can you help us to be the bridge to the farmer to figure out how we lead the customer going to meet our sustainable acre goals? We know that we have that important position to them. But we also know that that's kind of a test of our credibility. And I think that the sustainability world is recognizing agriculture is a place for innovation, agriculture is a place for stewardship and an important player in achieving global goals.

Can you describe the intersection of ESG and operating performance goals in terms of growth, cost efficiency, investment opportunities? And specific examples are always enjoyed.

So as I mentioned, one of the lower-hanging fruits is energy efficiency. So that's always an investment that makes sense most of the time for a company because the return is very fast. There's also cost savings. And so we've recognized more than 20% energy efficiency and cost savings as well in our previous generation of sustainability goals. We intend to build on that another 15% intensity reduction. And we can do that through what we call energy treasure hunts. And so in that way, we can identify opportunities throughout our global facilities for cost savings as well as energy efficiency. With respect to growth, and that's the more interesting and fun part of this. When we talk about things like plant proteins, which are, in many ways, a sustainability story. That's an area that is not only important to the planet, important to our consumers and customers, but it's also a big growth and innovation area for the company. So we're able to identify those opportunities and see where we can differentiate. And when we combine that with our ability to reach back to the farmer and to know what their practices are and to influence them to have sustainable practices, that's a tie between the innovation and the product that we can create with flavors and the ways in which we're able to bring those products to market. But we're also able to reach back, look upstream, influence the farmer and also provide the information about the farm to the consumer. That's the way in which we can combine our role along the agriculture value chain and be a differentiator and creating a unique value for customers that want information and want the product as well.

In terms of plant days, how much are you looking to invest generally? I know you may not give us an exact -- and what type of returns do you get on something like that as those 2 intersections come together?

I think I will refer to our numbers person, to Ray, to answer that question.

So thank you, Alison. Again, yes, the plant-based proteins is a very, very important part of our nutrition business, as you know. It's a part of our human nutrition business. It's one of our key pillars of our human nutrition business. We are probably the world's largest plant-based protein producer right now. And we were the ones that invented the segment many, many years ago. And we've built capacity around the world, right, whether it be the Campo Grande facility down in Brazil or the Enderlin pea protein plant that just recently come online. So we've added capacity in terms of expanding our presence in this market. And clearly, the market is growing fast. And so therefore, from our perspective, we're working through capacity unlocks right now to further improve what we can produce off of our existing plants. And that's actually one of these areas whereby our CoEs, our CoE and manufacturing excellence is helping us with a lot of these capacity unlocks right now.

And what kind of returns do you get on a project of protein? Again, as you go into these ESG growth initiatives, are they higher or lower than what you would consider growth initiatives years ago? Are they in line with it? Is there cost associated with them that may be actually lower? Just -- and I know -- just some framework for us.

No, no. I mean these are attractive projects. This is a growing market, good margins. It's fair to say that these things are significantly above our hurdle rates in terms of projects. So these things are very much EVA-accretive to our company. And we like these projects.

Can you talk about -- just shifting to low gears into structurally, what have you done to create a sustainable model at the operational level? So how much of that, what you've done over the last, call it, 3 to 6 years, have you been able to create a sustainable operation that you don't have to worry so much about the fluctuation in commodities, what have you done? How much did that create? And how do I think about that going forward?

It's interesting. One of my themes within the company is about sustainable earnings, right? So that's a play on the word sustainable, both in terms of making sure earnings continue to grow, but also we're doing it on a sustainable basis. So that's one of my themes within the company. So I think about 3 important areas whereby we're driving sustainable earnings. Number one, we've done a lot in our portfolio. When you think about our business portfolio, our product portfolio, we've made it a lot more resilient than it was, say, 5 years ago. So a case in point, our Global Trade operations, which, before it was named Global Trade, it was called Toepfer, right? Toepfer had very, very volatile earnings because it was frankly trading a lot, right? And so what we've done is we've adjusted the business model on this business to be really what we call trading around our assets. And so, therefore, we've seen the level of robustness of earnings of global trade significantly improve over the past couple of years. Hence, I'd say a major contributor towards our overall ag services results. So that's an example of making our portfolio more robust. Another one is grow our Nutrition business. Five years ago, we really didn't have a formal Nutrition business. It was buried within our existing businesses through the WILD Flavors acquisition and recently the Neovia acquisition, we've actually grown the Nutrition business, whereby now it's a significant contributor. And it's actually very, very robust earnings, right, very predictable, robust earnings. So the portfolio is one of these areas, Ken. Secondly, readiness. We've talked a lot about readiness, a lot of people ask me, what is -- what really is readiness? Readiness is, from my perspective, driving continuous improvement in terms of how we execute within the company. And so by doing that, we actually have, what I call, less leakages in this company. So we're executing a lot better. I actually think 2020 is a great example, whereby when I look at the performance of this company, our execution capabilities have been superior. I've seen very few leakages within the company here. And I attributed that really towards our readiness program in terms of helping us understand discipline, execution, et cetera, et cetera. So I think that's a second major contributor in terms of why I believe there's a lot more sustainable earnings well enforced. And then, thirdly, in terms of just our construct within the company. We've introduced the concept of CoEs within company. So we've introduced an organizational construct whereby we have the businesses, driving a lot of it on the commercial side of the business, but we also have the CoE. So we got CoEs in the manufacturing, purchasing, supply chain, IT. Centralized law of these activities. We brought out the best people into these activities. We hired from the outside. And so, therefore, we're bringing a lot of great knowledge and great energy in terms of how do we actually even improve our operations going forward much, much better than we've done in the past. So I think those 3 areas can really -- gives me confidence regarding sustainable earnings going forward for this company.

And continue to move through this topic of sustainability, but more on the industry side. How does renewable diesel play into the sustainability role for you guys both from an ESG side, but also from an earnings? And how did that affect the outlook for soybean oil? And what are the long-term implications?

I think the renewable green diesel is a catalyst for us going forward. When I think about the ag services and oilseeds business, maybe I kind of use this -- that as a basis in terms of how I think about this segment going forward. There are several factors that actually result in a very, very positive outlook for our ag services, oilseeds business. So if I look at ag services, for example, the whole aspect of China returning back into the global markets in terms of sourcing agricultural commodities, whether it be soybeans or corn or sorghum or all the -- that's a significant factor in terms of kind of our near-term forward outlook for ag surfaces because that's going to be a significant demand driver in terms of supporting origination, whether it be in North America or South America. But in the case of oilseeds, you're right, I think renewable green diesel is a catalyst in terms of supporting bean oil demand going forward. And again, this thing is going to unfold over time. I mean as more and more renewable green diesel capacity comes online, there's going to be more pull for the soybean oil feedstock. So this is a story that's starting to unfold right now, but I can see this thing really start unfolding in the latter part of '21. And -- but really, think about 2022, I mean, that could be a pretty significant story here. But the layer on top of this, Ken, the fact that on the meal side, you see animal protein demand recovering. After we get through the COVID-19, after we get through the pandemic, right, so as the vaccines kind of get generally distributed in the first half of next year, you're going to see the foodservice sector start recovering in the back half of next year. So you're going to see demand for animal proteins, the demand for meat start returning again. And so that's going to have a roll-on effect as well on the whole aspect of the animal protein markets and, hence, the meal market. So I do feel that in the case of the oilseeds, you've got the whole story unfolding right now, but you're also going to see a recovery in terms of the meat markets, animal protein markets. That's going to be supportive for the meal market as well. So I'm actually quite constructive, frankly, in terms of how 2021 will unfold in terms of the overall crush environment for the world.

This is always the death of an analyst is to say this time is different. But is there a change in the industry behavior and capacity expansion, right? That is the one thing that can take this beautiful scenario off its -- off course, right? I mean we've seen it before in other industries. So you pointed out, obviously, the China demand facility meal, the renewable diesel. How do we know that the industry will keep on that path and not distort the growth out of the...

I think -- I mean I can speak on the behalf of ADM. I mean, as you know, our objective is to drive towards a 10% ROIC objective for the company. So we are going to be very much returns-focused in terms of how we think about running our business here. My sense, in general, for -- is like the soybean crushing industry, which has, by the way, consolidated over time, right? I think about this industry compared to 5 years ago, you've seen a lot of regional consolidations going on as well. So the industry has consolidated. And generally, there's also an attitude that returns are important for our industry for the long-term viability of the industry here. So I think what you're going to see in terms of renewable green diesel impact on our industry is people are going to focus, first of all, on capacity unlocks, right? You're not going to immediately go towards building new greenfield capacity. There are opportunities for capacity unlocks with respect to the existing capacity. And these are things that we work on. There are opportunities also to figure out in terms of the actual bean oil, the mix associated with bean oil sales. And so I suspect some of the lower-margin destinations for bean oil, which would include the export markets, I suspect that there's going to be some cutback in those areas, some diversions into the domestic market. And there'll be some adjustments in terms of the use of bean oil and biodiesel demand as well. So I think, Ken, I think the industry is going to be very smart in terms of looking at how do we actually come up with the incremental bean oil in order to satisfy the renewable green diesel market. I think there's going to be some logical thinking that's going to go on here in order to make sure that we protect the returns. Again, I think a lot of us are very much returns-oriented right now.

And what is ADM's path to $1 billion in operating profit in Nutrition? And how quickly can you attain that? And what are your key assumptions and drivers?

I think the $1 billion in 2024, as we talked about in the last earnings call, is a pathway whereby we think this is a continuation of what we've done. So we've made 2 significant, what I call, platform acquisition, WILD Flavors back in 2014, and then recently, Neovia, for the case of the Animal Nutrition business. We've got the 2 large platforms for us to grow the business. And so we're going to supplement these platforms with organic growth initiatives, which is what we're doing. We're making organic investments right now, but also bolt-on acquisitions. I mean there are clearly opportunities for us to do additional bolt-on acquisitions, whether it be enhancing our regional presence in Latin America or enhancing our regional presence in Asia Pacific. There's probably some parts of the product portfolio we can round out as well with bolt-on acquisitions. I mentioned that health and wellness. This is a fast growing area, whereby we're involved in the probiotics business. We've got a strong presence already through a couple of acquisitions, namely Biopolis and Protexin. But we can probably supplement those as well as part of our growth strategy here. So I think, Ken, in terms of our pathway towards getting towards $1 billion, there's organic growth. There's going to be a lot of innovation. I think that the whole aspect of our key account management initiatives are going to be very important in terms of how we actually further enhance our relationship with customers and come up with customer solutions, not just selling ingredients, but actually selling solutions for our customers. And then we'll supplement with some bolt-on acquisitions as well.

How much -- to get to your 10% return on invested capital, how much does it require your core refining business to change certain characteristics, given the -- and managing the flex capacity between high-fructose corn syrup and ethanol, how much does it require that environment to get better? Is there enough self-help that you can do because you can manage the flex capacity? Just talk about those 2 issues.

Yes. I think it's fair to say that when we talk about our 10% ROIC objective in the future, maybe compared to many, many years ago whereby ethanol was a significant contributor towards that 10%, it's fair to say that we're not assuming ethanol to be a major contributor towards that particular 10% ROIC objective because effectively, one can argue that we've replaced the earnings of ethanol with the earnings of Nutrition, which is far more robust than back in 2014. So as I think about the 10% ROIC objective, there's going to be the aspect of growing the Nutrition business, right, through, again, organic growth and bolt-on acquisitions, which I talked to you about. But a lot of this is also, in case of carbohydrate dilutions, continue to run the business extremely well, right? So therefore, the aspect of cost efficiency or corn processing operations, making sure that the most efficient operations in the United States. Same thing on the milling, the wheat milling business, making sure they're very, very cost-efficient. Because with the industry structure that we have right now, the margins are good margins. And our job is to maintain those margins. We will also look at alternative products. Diversification. The starch stream into other products, including food-grade starches and industrial-grade starches. I see the opportunity, for example, that -- I'm talking about sustainability, sustainable materials, right? As we replace plastic-based packaging with renewable packaging, which includes cardboard packaging or paper based packaging, which requires industrial starches, that's a growth opportunity for us, right? So that's an opportunity to divert some of the starch stream away from the sugar part or the high-fructose corn syrup part into more of the starch-based applications. And so a lot of work being done in that area as well as part of the diversification of that part of the business as well.

Okay. You talked before about China demand, and that's obviously created a very healthy elevation margin opportunity. How do you assess the permanency? Or if it's temporal on that? And is this -- because, again, we used to -- not many of us go back that long, but there used to be a time that you actually used to earn good elevation margins 6 to 10 years ago. And then they kind of stopped. So the question is, is this a change of -- a structural change? Is this a temporary benefit? How do we assess that? And what's your thoughts?

I think the China aspect is an important phenomenon. I mean the growth factor of China in terms of the fact that they're eating more proteins, the fact that they've recovered from the pandemic. And that's an important factor because the reality matter is China cannot satisfy their food needs internally, right? And so, therefore, when you take a look at what's happening in 2021, Ken, I mean, they're going to be importing a lot of soybeans from around the world. Their hog herd has -- is rebuilding. They're probably not going to be at pre-ASF levels until 2022. But they're clearly rebuilding a hog herd. And they're also rebuilding a hog herd in the manner that most of the hogs are being raised in professional farms, which require then professional feed, which then requires more soybean that gets converted to soybean meal but also corn. So I think that's a structural change in terms of China. That's a structural change compared to 4 or 5 years ago, whereby the backyard farms remain an important part of how they're raising the hog herd. The structural change is the professionalization of farming in China. That creates incremental demand. So therefore, that is going to be supportive of exports, whether it be from North America or from South America. And that will be supportive for, frankly, origination margins in both parts of the world there. So I think there is a structural change here going on, Ken. And I use this as an example. I remember before as we were talking about maybe China importing 100 million metric tons of soybeans, right, before ASF. This year, 2021, I should say, 2021, we're now talking about well in excess of 100 million metric tons, right? And that's before the hog herd has fully recovered to the pre-ASF level. It tells me that the inclusion rates in China are going up in terms of professional fee. It tells me that China has to import more products. So this is a structural bump up in terms of demand that we're seeing in the world from China. And to me, that's a positive for the origination companies around the world.

So if I put it all together, and I think about ADM's 10% return on invested capital, it obviously implies north of $4 are released around there. What is the pace to what you can get there? And why would you not think that this is a structural change that you can get there at a faster pace and maybe even start to exceed those levels? How do we think about that? Because the return on invested capital of 10% seems more attainable than ever before given the 3 sustainability things we've discussed. How -- am I wrong? Or can you comment on that?

Yes. I mean I think 10% ROIC when you do the arithmetic, and anyone can take an HP calculator and do the arithmetic, a 10% would translate to above $4 a share, right? And so again, I'm not going to talk about EPS targets, but I'm very much focused on the return target for the company here, the 10% ROIC target. But when I think about the forward outlook for ADM over the next year, next couple of years, so it's not just 2021. I'm talking multiyear now, right? And I think of both our 3 businesses right now. And let me go reverse order in terms of the value chain. I think about the Nutrition business, the $1 billion target that we set up for 2024. I think about the performance that we've been executing in 2020, because I think this clearly is a breakout year for Nutrition. I think about kind of like what's in our innovation pipeline right now in the case of our Nutrition business, all the good work we're doing on the Animal Nutrition business, I feel very good about where the Nutrition business is going, right, towards that particular target. Carbohydrate Solutions. I think about the vaccine going to general distribution in the front half of next year. So therefore, I think the foodservice sector is going to start recovering in the back half of the year. So I actually see a recovery in terms of the high-fructose corn syrup part of the market in the back half of the year, back half of 2021. I see general economics to be recovering in the case of -- and that will have an impact on the ethanol business. I see China starting to buy ethanol from the United States. I think part of it is because they need it, part of it maybe because it's part of the Phase 1 agreement there. So if I think about the ethanol environment in 2021, it's going to be better than 2020. It's going to be better than 2020. So that's going to be a positive delta for our business. And to the extent that the U.S. Supreme Court does not hear the appeal of small refinery exemption, that'll be also a positive for our ethanol industry there. So I see that being a positive pillar in terms of our earnings over a multiyear period. And then I think about ag services and oilseeds, right? And I get back to China being a fairly aggressive buyer of agricultural commodities around the world, both North America and South America, as they need it because of the growth of the economy. And then I look at crush, and I think about how renewable green diesel is going to be impacting the demand for oil over a multiyear period. And you lay on top of that the meal demand is going to remain solid, right, especially with the recovery of the foodservice sector in the back half of the year. So how I see it, Ken, is like the drivers, the main driver and then -- by the way, and layer on top of that, all of the -- how our company has improved in terms of execution, like through the readiness initiatives through the CoEs that we put in place, right? You put all this together, I feel pretty good about where we're headed right now, right? I feel very good about the 10% ROIC objective. I'm not going to tell you exactly when we're going to get there. But if you ask me sitting here today compared to maybe a year or 2 years ago in terms of how I feel about where we are as a company, I feel significantly better about where we are as a company in terms of our ability to deliver upon the long-term objective that we set forth. So I think we're sitting at a very, very nice point in this company right now.

With that, we'll end it at that. Thank you guys so much. It's really been a pleasure.

Okay. Thank you, Ken. Thank you, everyone.

And be well.