Darling Ingredients Inc. (DAR) Earnings Call Transcript & Summary

Good afternoon, everyone. I'm Kalei Akamine from the U.S. oil team. I'd like to welcome you to our next session, which is a fireside chat with Randall Stuewe, the Chairman and CEO of Darling Ingredients. For those of you that don't know Darling, they are the joint venture partner with Valero in Diamond Green Diesel, the largest RD producer here in the United States. Darling itself is the largest independent wrangler of the animal fat, which is key to their strategic advantage to the partnership. And this puts it at a very interesting crossroads between ag and oil. And so to help us understand this wonderfully complex business, I'll pass the floor over to Randy who can give us an overview of where he sits in the business today. Welcome, Randall.

Thank you. Thanks, Kalei. I appreciate the opportunity to share with people and get a chance to give our views. And first off, welcome, everybody. Kalei has given the old description of Darling. We would call ourselves the largest sustainable ingredient supplier in the world, producing and processing nearly 10% to 12% of the world's slaughtered animal byproducts into sustainable ingredients and decarbonization solutions. So you'll kind of hear that message more over the coming years as it resonates. We've been around a long time. We're 140 years old this year. People have a hard time getting excited about an old company. But I kind of -- I've been really excited about it. I'm entering year #20, and the vision for the company for the last 20 years was to kind of -- was to once again elevate production agriculture, livestock production, make it more economical, more efficient, feed the world and create solutions that make the planet a better place, give people better lives and give our communities better opportunities. And I think we've done an incredible job of doing that. For people that know about Darling, we're headquartered in Irving, Texas; who don't know about Darling, we have approximately 230 factories around 18 countries in the world on 5 continents. We're the largest producer of waste fats and greases in the world today. And then we operate 2 renewable diesel factories in partnership with the incredible group of people, Joe Gorder and company from Valero. It was a dream that we embarked on 12 years ago when we tried to find a way to upgrade or value add animal fats. Animal fats at the time were a disenfranchised calorie, if you will, that were predominantly used in animal feed to super size rations for livestock production. And we wanted to basically, in a nutshell, create another market and own the arbitrage between animal feed values and fuel. We wanted to own a calorie and a BTU arbitrage, and this was all the while that 2007, the Energy Independence and Security Act was coming around. And this was when biodiesel was starting to move or is referred into the renewable fuel standard, biomass-based diesel was gaining favor. And we wanted to find the right way to participate it and make a product that a customer wanted. And in this case, the customers are predominantly the large oil companies, merchant refiners and distributors. And as we all know, the challenges with animal fats is that in colder temperatures, they get hard or they have cold flow issues. And so the technology was developed. It was serial #01. It was in partnership. We brought some magic in the form of origination and supply chain of waste fats and greases, along with the knowledge and know-how to refine or purify or, the buzzword in the industry today, pre-treat. That came through a lot of years of experience in the business. And we married it with Valero's incredible operations teams, distribution teams, optimizations teams, and we built an unbelievable first-mover business today that we're all very, very proud of. And we look forward to the future. So it's kind of an incredible time to be in the business, and we really look forward to telling people why we have a very defensible moat and a very global platform for the future.

That's fantastic. Maybe I'll kick off with the question on what we think is the key issue for the Darling stock. So within renewable diesel, there are 2 margins that one needs to consider: there's the margin that's on the feedstock; and there's the margin that's on the fuel. Not a lot of guys have exposure to both, but you do, and I don't think that's well understood. So RD margins at this moment are uncertain because there's a lot of -- there's not -- there's a lot of new supply getting in the market. So that's an issue for the margins. And it's one of the reasons -- and one of the reasons for the market weakness is because feedstock prices are high. But that's actually what Darling does very well. So I'm hoping that you can elaborate on that and talk about the cash flow sensitivity of your business to higher feedstock starting from soybean oil and the derivatives [ that brought it ] like the fats and the oil that you produce.

Okay. No, I think it's a fair question, and it's not one that's well understood. And then it goes back to why did we enter the business. We entered the business to create another market for a product that had limited use. It wasn't being used in food. It was only being used in animal feed. And so that's when we invested into the technology. What's interesting is as we've invested, co-invested the same amount of money on both sides of the ledger to grow our supply chain, at the same time, we're growing the renewable diesel production capacity with Valero. If you look over the first 5 years of the facility, the joint venture, it operated at $1.26 a gallon. The second 4 years headed to 5 years, it's operated at $2.25 a gallon. This is all while feedstocks moved up and down, oil moved up and down, RINs moved up and down, LCFS came on. That's the difference between the $1.26 and the $2.26. What we like to tell you is we invested in the business because we know both sides of the ledger would make reasonable returns for our shareholders. Some days, we get a little more money on the Darling side. Some days we get a little more money on the joint venture side. We're okay with that. I think at the end of the day, our job is to make sure for the joint venture, along with Valero, that we're giving a return to both of our shareholders. And I think we're both proud to say these are really super products. And you asked about the margin. And I think this is the thing where people spend way too much time in the forest, completely lost, trying to figure this thing out. Our world is very simple. We look at what is our advantage against a renewable diesel producer that runs off of refined, bleached, deodorized soybean oil. What's our margin against a waste fat biodiesel plant? What's our margin against the soybean oil biodiesel plant? And that's where -- when we look at the margins today, that's where we're coming at that $1.25 to $1.50. That's the advantage we have by our locations in St. Charles, soon here later this year, early next year in Port Arthur. It's -- we're on the water. It is a classic real estate play. Location, location, location. Location of hydrogen, location of natural gas, location of inbound feedstock, outbound finished product, outbound by rail, outbound by vessel, outbound by pipeline. There's nobody out there that can compete at that level. Our margins are not a California-driven margin structure. We ship a lot of product around the world today, and that's what gets really misunderstood. Everybody stops the world and says, "Oh, my gosh, the LCFS value is down to $130 or $35 a ton. Oh, my gosh, margins are turning. Oh, feedstocks are up to $0.80 or $0.83 delivered." So what? It moves around. And at the end of the day, we believe we've never promised anything of the sustainable $2, $3 margins we were able to earn last year. But if you still think at $1.25 to $1.50 on a $3, $3.25 a gallon greenfield build-out, that's a pretty darn good return, even if you put it back on a per barrel or per ton or per gallon basis.

I guess where I'm going with it is the sensitivity on the base business. I mean, obviously, renewable diesel has its own exposures. But in the case where your $1.50 margin that you talked about compresses because of feedstock spreads the discount between animal fat versus [ soybean ] oil, the nuance is that your base of business should actually be able to capture the higher price. Is that the right way to think about it?

Absolutely. Remember, we don't operate in a vacuum. Animal fats move with the whole global oils complex. So it's just not anything that one is independent of the other. So as palm oil rises up, so do we, because that's the alternative for the oleic acid business or the olio chemical business, steric acid. And if soybean oil then follows palm oil because palm oil is the #1 food oil, we benefit from that. I mean we've been open with our shareholders over the years that every penny rise to the Darling system worldwide is worth $10 million annually in EBITDA. And that's where we made $850 million in our core ingredients business last year, $850 million. And we're giving guidance this year of $1 billion. And the simple difference is the average selling price last year of fats versus where we think this year will be. And that's on a global basis. Only about half of our earnings come out of North America. This is a global business for us on all the different continents. We're seeing fat prices in Europe this afternoon rise up to almost $2,000 a metric ton. Very, very unheard of. And that's being driven by the RVO or the HVO producers that are running for the product, the low carbon intensity product. When you think of it, yes, we benefit from it. But we are a fully integrated model. You call it a circular in today's world. Or you can say we're kind of the ExxonMobil of this business because we own the E&P side and the downstream side. So end of the day, we can -- we go from farm to consumer on the energy decarbonization process.

I think you touched on it. Darling is really exposed to the circular economy of agriculture. So maybe for an audio audience, which is primarily the guy that's watching you right now, if you can help us understand the full case that's now unfolding for the agricultural industry. And what I'm thinking about is pre-Russia, right? So our very amateur understanding of it is that Chinese hog operations over the last several years have been modernizing, maybe using a lot more traditional animal feeds. And that's partly why we've seen a run-up in agriculture prices over the last couple of years. Maybe you can just help us understand what all that means.

Yes. It's -- I think the key word is we now have a globalized, interconnected, interlocked world on whether it's food, whether it's feed or whether it's fuel. And so about at the fourth quarter of 2019, we started to see the world turn. And what I mean by that is the thesis that underlies our business is population growth, wealth creation and better nutrition. And better nutrition involves a protein or a center-of-the-plate dining. It goes in this order: fish, chicken, pork and beef. And those are in the forms of affordability, too. And so the world continues to seek out better nutrition because of high GDP growth around the world. Not only if you think about as GDP is creative, what do you need? You need more energy to heat the home and drive to the store and then you want to eat better. And so that's the trend that happened at the end of 2019, and we call it a demand-driven cycle, demand being outstripping the production capacity of the farmer, the global farmer, to produce grains, oilseeds and palm oil. And so we started to see prices move up. We've now interjected a decarbonization move, which renewable diesel, in our case, produced out of a triglyceride or a lipid, is a major user of the fats and oils that were, to a degree, an excess in the world now and have helped move those up. Lipids follow petroleum or fossil diesel because they're a substitute in many economies that have mandates around the world. So that's starting to move. You throw in the Ukrainian issue now, the Russian-Ukrainian issue, and you've kind of exacerbated what was already a very tight S&D because of growth in demand for the last 2 years. If you think of for -- as you said, for the audience, Ukraine is one of the top 3 or 4 exporters of wheat and corn and sunflower seed and sunflower oil in the world. And so that's going to tighten up the availability. I mean we saw wheat earlier this week, as of 1.5 days ago, go to $15 a bushel back off to $11, $11.50 today. We've seen corn move from $4.50 a bushel to $7 a bushel and soybeans move from $12 to $17. This is not -- and what I'm trying to communicate is this is not a situation where a small increase in supply, because of good weather, is going to rectify a tight supply or an over-demand situation here in the next year. I, from my seat today that where I sit, I see it as at least an 18-month to 30-month window here of crop cycles to improve it. And one last example is if you think of the Ukraine and Russia, they're both major growing areas in the world for those crops, and there's disruption now. And they have big seed businesses. They're run by Baird, Syngenta, Corteva in the ag side. And if they don't get those crops -- the seed crops planted, there won't be seed then for 2023 to plant. So that's where you get into these multiyear disruptions. China, you've absolutely pointed out a replenishment of the hogger. China has a growing middle class. It has an incredible appetite for meat. They're out of land. They're out of water. They're a giant importer of different grains, oilseeds across the world. That's not going to change. They've had to deal with disease over the last 2, 2.5 years. I would tell you, from our operations in China, they don't have the disease under control. They just learned to live with it. And so at the end of the day, they're commercializing more efficient and larger production systems there. Biosecurity is a big word there. But ultimately, they're going to continue to use more and more ag-based products with -- around the world today. So this is not a situation that rectifies itself with 1 crop cycle, say, with harvest next September or October. It will be at least a year from then again.

It sounds like we're really in the middle of a structural reset in ag. But perhaps for a perspective, give us a sense of what the last 10 years have looked like and where we are in this cycle. Because looking at that prices on the forward curve, we can see that we're at a peak, but the curve plateaus at a level where it's still a lot higher than the last 10-year average.

Yes. And it's an interesting discussion for me because, over the last 5 to 7 years, we've invested, I don't know, almost a couple of billion dollars into our ag system production processing system while the prices were below the 10-year average. And so in a sense, as the team gets -- we struggled a little bit with returns and justifying why we were investing your money, but we fundamentally believe that whether it's petroleum, whether it's ag, nothing stays under the 10-year average for long forever, and then it tends to move up. And about every 10 years, it notches up a little bit. And I think both are happening right now. I think the ag reset is probably a little overdone, but it's probably there for 18 to 30 months. Petroleum has got to balance off with a growing energy demand and the supply side disruption and all of the regulatory issues that are happening out there. But I think we're -- I would have said a year ago, we were probably approaching the peak of it. And now I think it's going to stretch on out for a couple more years. But it's not going back to where it was for the prior 5 years. I know it's always hard in a commodity world to use the word never and not. So I'm -- hopefully, my crystal ball didn't have too much fog in it right now.

Perfect. Maybe we can change tack and focus on how Darling thinks about renewable diesel margins. And to set the stage, we'll give you an idea of how we think about it. So here in the U.S., biodiesel is obviously the marginal producer. And we're coming into a situation where a lot of renewable diesel supply has come online in the fourth quarter of '21 and here into 2022. So the effect is that a lot of biodiesel is being forced from the market. The sort of balancing item within the economics of renewable diesel is the diesel RINs. In equilibrium, it's supposed to price at a level where it continues to incentivize the marginal feedstock that can be used in renewable diesel. But we're crowding out biodiesel from the market. Are we entering a situation where diesel RINs don't cover that full cost? So I wanted to get your thoughts there.

Yes. It's -- I don't know that I would look at it that way. I would do what I call a Franklin Balance Sheet and draw a line down the middle of the paper. And on the left side, I would put the renewable fuel standard and the 2.4 billion gallons of biomass-based diesel that must be fulfilled. And in order to produce that, you've got a choice, the physical can be produced, or you can buy a RIN. And we've proven that the process truly works and is efficient. And as -- if you think about it, if heating oil is flat and soybean oil, which is the predominant production part of the RFS, goes up, then the RINs got to move up. And therefore, that's a very dynamic situation. If biodiesel plants could use animal fats and waste fats, they would be using them because they were cheaper, they have a better CI in the sense there. On the other side of the balance sheet, then you have the renewable diesel production side, of which we would probably disagree with you that production is ramping up. I'm not going to tell you what I -- it's just we brought on October 22, the Port Arthur 2 plant -- or not the Port Arthur, the St. Charles 2 plant. It went to capacity within 30 days and ran. And the production got absolutely absorbed without a hiccup. We don't see any other plants coming online. We see maybe the Holly plant coming online later this year in Artesia, maybe Cheyenne. They've got to learn to run it. I mean it didn't work for us on day 1. I mean this isn't an on or off ignition button. And so they've got to learn to run it. They also have about 6 months before they get a pathway from carb, other than a soybean oil pathway. So end of the day, I think it's a very defensible piece right now for us. We look at it and say, until there's more renewable diesel capacity that can fulfill the renewable fuel standard, you're going to have a need for classic or gen 1 biodiesel. And I think Chevron absolutely placed that bet on the craps table here. They made 2 bets: one, that you needed biodiesel; and two, that carbon isn't going to $40 or $50 a ton. Why would you invest that kind of money, if you thought carbon was going there? So at the end of the day, I think we're well positioned. As I told you before, this is so hard for people to understand. We don't wake up in the morning thinking about the RIN, the LCFS, the feedstock and all that. We try to look at what are defensible advantages to the alternatives. And no one has the vertical, the circular, the supply chain into the 2 plants that we've built with Valero. I think it's safe to say, we don't go out there and promote it. But all the fact going to those 2 plants today in New Orleans is not U.S. originated. It is a global waste feed market. It is a global R&D market. Not all of the finished product stays in the U.S. It goes to carbon market. So really, at the end of the day, we're looking at different markets. We're arbitraging different feedstocks with different CIs against different customers. We produce one of the things that we differentiated ourselves on. We produce Arctic grade now at DGD1. That can be burned year round in Canada. There isn't another Arctic-grade producer in the U.S. today that I'm aware of. We're ready to produce jet fuel one day, but we're waiting for the subsidies and the remuneration to equal the transportation fuel. So as I said, and I don't mean to keep hammering at home, the supply chain is second to none in the world. We're self-sufficient to as big a degree as I think we need to be. That's our responsibility to Joe Gorder is, is we will develop the most efficient supply chain to the system today and such that we can efficiently convert it. And so end of the day, we feel very, very good about where we're at, even if more capacity does come online.

Randy, I wonder if I could take a couple of questions here. And again, a lot of us in the last couple of years have gotten to know your company. Hope to get it to know -- to get to know even better. But do you think of yourselves as a food company first or a fuel company first? Or is it evolving?

I think the -- I think we view ourselves as an ESG company. If you said -- if you say, what do we do for a living? The 30-second elevator speech is we're one of the world's largest producer of sustainable ingredients while we're the greatest enabler of decarbonization on the planet today.

Okay. So do those 2 remain 1 on a sustainable basis?

I truly believe from our perspective, food, feed and fuel can all coexist and manage. What I want to say is I will not be on the front page of The Wall Street Journal on that food article, food versus fuel article, that's going to be out there. That isn't us. Welcome to the RBD soybean oil, guys, when your bottle of a thousand island dressing doubles in value here.

Well, I guess, let me ask the question more acutely. Do you retain ownership of your 50% of DGD long term?

As long as Joe Gorder wants to be in, I want to. I love being part of this. It was a dream from a very personal perspective, Doug. There was a $423 million investment at the time back in 2010. That was a pretty good chunk of the market cap of Darling at the time. It was a career bet for me. And as always, as a public company, monetization is a Board choice, and I'll listen.

Well, that's a tremendous track record, Randy, so no question. Credit to you for that. Let me ask you a different question along the same lines, though. How scalable is the business from here? And I guess, what I'm really trying to get at is once DGD3 comes online, what's the trajectory beyond that? And how aligned are you on Valero on what that trajectory looks like?

I don't want to put words in my partner's mouth. But I think Joe and I -- I said to Joe one day, I said, Mr. Gorder, I said, I think we got to see #3 come online. I said #2 is up and running. We're originating 40% of North America's waste fats and greases today. I'm not sure people thought we could do that. When #3 comes online, roughly 9, 9.5 months from now, that will be 2/3 of North America. You kind of -- jokingly, you are kind of now Saudi Aramco of North America. That's an oils business. I kind of said, Joe, let's take a breather. I said, yes, we're going to narrow the spread between animal fats and soybean oil because it's just natural carbon intensity. But there will be a feedstock fight in this country. I suspect it's going to be over RBD soybean oil first because there just isn't enough capacity. These plants aren't putting in the necessary robust pretreatment system to handle anything but RBD versus crude soybean oil.

Okay. You mentioned earlier about you don't believe that there is going to be as big of a build-out. I just wanted to touch on the West Coast specifically because there's 2 plants, obviously, out there that are in permitting. But permitting in California is notoriously difficult. Do you have a perspective as to whether you see those 2 actually coming online on the time line that they've been suggesting?

Well, they're both great companies, and both will succeed at whatever they put their heart to. I mean I think if you're bored this weekend, you can probably go print the environmental impact reviews that were printed out there, as long as your printer has enough paper, to get to them. They've got their challenges. I mean -- I think Valero would probably indicate that maybe they had a chance to look at the niche at 1 time, but we all felt we'd all be older before we got a permit. The thing about repurposing assets is once a stranded asset, always a stranded asset. And if it was in the wrong place, the first time, I still believe it probably is, too. Yes, it's located in California, the most expensive electricity in the country, the most expensive water in the country. And if you're going to pretreat fats out there, someone needs to tell me where you're going to get rid of the bleaching clay in that part of the world. And oh, by the way, there's no feedstock unless you're going to bring it in by water. Those aren't easily rail-accessible locations. So I applaud them. I think from their perspective, it seems like the right thing to do. I'll comment a little bit. I mean the Neste, I'm sure you guys hosted Neste. I didn't get to listen to my colleague, Peter Vanacker, a great guy, great leader. But I mean, the challenge there is, obviously, if you think of the rush, of the repurposing of the stranded assets, while your clients out there bought ag on the blender's tax credit for years, they're lining up as the greatest proponent of the blender's tax credit because the repurposing of these assets doesn't work without $0.5 a gallon. And so it's kind of a strange world. And then you look at it, while the build back better kind of has fizzled for now, I think we'll get the blender's tax credit, we'll get an SAF credit, there just seems to be momentum now in that world. But at the end of the day, you've got to go to the Page 29, Line 4, just kidding, but find the fine print again, and you see that, that turns in 3 to 4 years to a producer's tax credit. So if Neste is not on the geography, on the land, their product can't come in. And so that's kind of -- you can start to see where some of these investments are rationalized.

Sure. Just a couple more for me. One actually came in from a client, which is kind of above my pay grade. Hopefully, you'll be able to answer it. But the last one for me is, the DGD, did your relationship with Valero preclude you from having a partnership with anybody else?

The answer is yes. And it was by design when we put it together. We went serial #01. A lot of proprietary technologies went into it and knowledge and learnings. Our fear was they would be -- they wouldn't stay sovereign, and their fear was we wouldn't stay sovereign. So the agreements are posted out there. If you can go read them, they're still out there, I think they're dated 2009 or '10. And they basically say that we both mutually have to agree to have the other sell their share. And if we want to go build something somewhere else, we have to give each other first right of refusal.

Sure. Okay. So the question from the audience that came in was -- is relating to cattle -- the cattle herd, suggesting the low cattle herd, is that impacting your supply? And I guess, I would broaden that question out to say, are there any cyclical or seasonal issues that are potentially a risk for your available feedstock in the near term?

No. I think this year, we look at it -- the production of feedstock for us has accelerated without acquisition by about population growth, 1% to 2% a year for the last 10 years. As I was joking on another call during this week, you're not going to go raise an animal to make renewable diesel. I'd also say you're not going to grow a soybean to produce renewable diesel. And the reason that is, is because there's 85% of that soybean is protein, and you got to have a margin and find an animal to buy that protein. So no, I mean, we're in -- we are in the perfect storm, Doug, right now, where we've got a very tailwind commodity cycle, and then we've got solid margins still in DGD. For the Darling shareholder, we are 9 months from a high-class problem. And that problem is $1 billion of free cash flow. And so from our perspective, we're going to keep the company, and we're still trying to gain enough scale and size and convince Moody's and Standard & Poor's and Fitch that we deserve investment grade. We're levered at 1.5x today. At the start of the joint venture, Valero's the consolidator. We're not. I've been unable to yet at this time to convince the SEC to let us double consolidate. Doesn't mean I'm not going to accomplish that, and such that we can show that we're -- if we were a consolidator today, we'd be a Fortune 400 -- no, we're actually #408 on the Fortune 500. So a lot bigger, a little company underneath here. And then, at the end of the day, we're going to look more like your clients because we're going to be in a situation where we're going to have to repatriate capital to shareholders on a regular basis. And that's an exciting time. As I look at my 20 years in the seat, dividends and investment grade were something I don't know that I ever dream that I'd ever get to put under here. A dividend for me, when it -- in the years past, was an admission that I didn't have something better to do with the money. But I think we're going to get to a scale here where I'll still have enough to do everything, to delever, buy back and to share.

Yes. That consolidation question, by the way, that's why I asked the question about the ownership structure because you're right, it's pretty clear that you -- the stock has done great, don't get me wrong, but understanding whether the market is giving you full recognition for that is always a question that you can't really see, given the consolidation -- given the full consolidation in nature, obviously. Maybe, Randy, just one last question and feel free to decline this answer because it's a little on the edge perhaps. But it seems that when we look at guidance, we get different guidance from Darling sometimes than we get from Valero. Why do you think that is? And how will you reconcile those?

Well, Joe will tell you that Diamond Green Diesel 1 and 2 are a 700 million -- 697 million gallon unit. And I will tell you, I sit in the chair of optimism, it's a 750 million-gallon unit. So I just -- I live the world pushing the team and being more optimistic. I love the Valero team, and they just take a very -- a much more conservative approach. You can say, well, it's less material to them. It's very important. I mean I love the portfolio of liquid solutions that Valero has built, and they should be recognized and rewarded for that compared to all their other competitors. And then so at the end of the day, they grew up in that environment of hard to say what a crack spread was going to be and how it works. So they work there. I mean at our world, we look at it and say, we're willing to step out there and take a little more of a risk at it. One of the other comments, Doug, that you made, which is, I think, interesting to the value of the company. We look at the guidance we've given for this year of our consolidated basis of 1.5 to 1.6 using even Valero multiple, our multiple, ADM's multiple, and I would love to use Peter Vanacker's multiple, we're $100 to $150 stock. And someone says, "Well, why aren't you there?" And our answer that -- and I'm always open to great ideas from your clients is, number one, we got to tell a better story; we're going to tell it on an ESG, number two; and three is that we're heavily quant fund-held. And I don't know that they know how to truly value and evaluate a nonconsolidated or a one line -- half of your earnings are in one line type of company, and that's the challenge we're in.

That's a really great answer. And having you on our platform, randy, is hopefully going to help you do that. So thanks again for being here. Kalei, I'm going to pass it back to you.

Got it. I want to talk about the kit. So obviously, feedstock is a differentiator, but all your plants are built for purpose. What makes the built-for-purpose plant better than what your peers are doing as far as conversions?

It really, Kalei, comes down to flexibility and experience. We've been doing it for 10 years. The -- I would say all fats aren't treated -- or aren't created equal. And I know it's a bit cliche when I say that, but poultry fat is less hydrogenated than beef fat, than pork fat. And so at the end of the day, there are -- there is a huge learning curve towards the mixology of what you need to feed to these reactors and what it takes to convert them. And so at the end of the day, there's 10 years of experience of learning that. The second thing is, as your petroleum customers or clients know, catalyst life. The guys up in Dickinson, North Dakota learned the hard way as to -- they've been trying to start up the new Haldor Topsoe plant, how many times they killed the catalyst up there. Not that we've been perfect, but we've learned along the way. So it's the pretreatment system, it's the robustness, the flexibility. And then given the supply chain, we have the ability to move in different grades of fat at different times. And what I'm going to say is summertime animal fat from the Western United States is not the same as wintertime animal fat. It picks up more and more metals. And so these are all the little things that you know as you get along the way. And so to optimize the system, both from a CI but an operating efficiency standpoint is really just a tribute to the team beyond what I already lectured you on, on location, location, location. It's the little things underneath there that add $0.03, $0.05, $0.10 a gallon. And I know in the basic petroleum business, those -- that's giant money. In this business, it's really good money, but it's very differentiateable. We added the green gasoline or naphtha units now. And that's helping us optimize. We're taking gases back to green hydrogen now, getting different credits for different CI scores to make the facility more and more competitive.

Randy, I'm going to close this out on a client question that we have here, and I'm going to read it because it's pretty nuanced. So Europe is getting renewable fuel from soybean oil feedstock. Is that correct? If there is a food crisis or very high food prices in the next couple of years, what is the risk that the U.S. will also be using soybean/corn oil to produce renewable diesel?

I'm not certain of the European comment there. There is a phase-out of palm oil in Europe because of its sustainability over time. And then there is a move under RED II to limit plant-based crops that can be converted to fuels there in the RED II. And I'm not sure of the exact percentages there. I think I commented earlier, I don't want any part of that food versus fuel argument. That's the waste oil positioning here. That's what makes us different. Because if you think about it, let's just take Martinez or Rodeo, whichever one, and say one of them luckily gets built, and it's -- whether it's 500 million gallons, whether it's 800 million gallons, take that number times 8 pounds. That's either 4 billion or 6 billion pounds of fat. At the end of the day, that's around 25% to 30% of the U.S. production of soybean oil in this country. And that's even after expansion. I mean that's just -- from my world, that's just not going to happen. It's not practical. So something has to give or you're going to have some type of pushback from the food -- from the consumer that says that, that isn't right. It was -- decarbonization was never meant to starve people. And they just have to be very careful as we go forward into that realm that they're going to take us there.

Randy, this has been insightful, and we could probably go another hour, but we're out of time. So I just want to end by saying thank you for your time, and thanks for being here today. Thank you to our audience for viewing, too.

Thanks so much, guys.