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Operator
Good day ladies and gentlemen and welcome to the first-quarter 2007 Archer Daniels Midland earnings conference call. My name is [Janelle] and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS). As a reminder, this call is being recorded for replay purposes.
I would now like to turn the presentation over to your host for today's call, Ms. Patricia Woertz, Chief Executive Officer and President. Please proceed, ma'am.
Patricia Woertz - President, CEO
Good morning everyone and thank you Janelle. I would like to welcome you to ADM's first-quarter 2007 earnings conference call. In keeping with our commitment to safety, I'd just like to start with a brief safety message, and that is happy Halloween, and I wish everyone a safe Halloween. And on our journeys home perhaps this evening, let's just be careful with all those goblins and young ones out there as it's also the change of the clock and it's quite dark. So we're all paying attention to that on this end.
We are pleased to report our solid results and the reflecting our strength of our global network this morning. Who I have on the call with me today is Doug Schmalz, Senior Vice President and Chief Financial Officer; also, Brian Peterson, Senior Vice President of Corporate Affairs. Doug will review the financial performance, Brian will then review our business operations and the various markets we serve. And we have added a brief slide presentation this morning so that you can follow along as we cover our results. I will be back with you during the Q&A. Over to you, Doug.
Doug Schmalz - SVP, CFO
As Pat mentioned and as we discussed at our last conference call, we have added a financial summary slide presentation. This presentation is accessible to you on the web site as per the instruction which were set forth in our press release.
Going to page 2 of the slides, it reflects our company's Safe Harbor statement. Some of today's comments constitute forward-looking statements that reflect management's current views and estimates of future economic circumstances, industry conditions, Company performance and financial results. Statements are based on many assumptions and factors, including availability and prices of raw material, market conditions, operating efficiencies, access to capital and actions of governments. Any changes in such assumptions or factors could produce significantly different results. To the extent permitted under applicable law, the Company assumes no obligation to update any forward-looking statements as a result of new information or future events.
On page 3 of the slides, it sets forth a list of the matters we will discuss on our conference call today. We will move forward to page 4, which is the slide that shows a summary of our reported earnings as well as unusual items. As reported, our results for the quarter ended June 30, 2006 were $403 million, or $0.61 a share. That compared to net earnings of $186 million, or $0.29 a share last year. Included in the quarterly results in both fiscal year '07 and '06 first quarters were gains on security transactions of $3 million after taxes. Net earnings excluding these items more than doubled to $400 million from $183 million a year ago.
Moving on to page 5 of the slides reflects a summary of our financial earnings highlights. Fiscal 2007 net sales and other operating incomes increased 10% to $9.4 billion due approximately one-half to increased selling prices, and the other half to increased merchandise commodity volumes. Our gross profits increased 49% to $866 million due to the improved operating results of major operating segments. Our Oilseeds Processing results increased on improved market conditions and crushed margins in all geographic regions. In addition, Corn Processing margins improved on increased Sweetener, Starch and Ethanol selling prices, and Agricultural Services gross profits increased on improved global merchandising and transportation results.
Our selling, general and administrative expenses remained relatively flat at $310 million, which was a 2% increase over last year. Our financing costs, net, which is interest expense less investment income, decreased 25% to $36 million due primarily to higher levels of invested funds and increased interest rates. The Company's effective tax rate for the first quarter of fiscal year 2007 declined to 30% from 31.9% last year primarily due to change in geographic mix of our earnings. The significant improvement in profits of major segments, plus the reduced financing costs and a lower effective tax rate have resulted in net earnings more than doubling to $403 million, or $0.61 a share, compared to $186 million, or $0.29 per share last year.
We will now move to page 6 of the slides and Brian Peterson will begin with a review of our current results and conditions of our various segments. Brian?
Brian Peterson - SVP Corporate Affairs
Thank you, Doug, good morning. As Doug mentioned, I will now make some comments on our various segments, starting with Oilseed Processing.
In Oilseed Processing, the operating profit for the first-quarter 2007 was $170 million versus $99 million for the first quarter 2006. Oilseed Processing results improved in all regions of the world. Regionally, we see the following. In North America, operations benefited from improved crush margins and volumes. Meal demand has been strong and oil values are improved from year-ago levels. According to the National Oilseed Processes Association, capacity utilization for the industry was around 84% for the quarter, up from approximately 77% last year. During the quarter, forward crush margins were approximately $0.20 per bushel higher than the previous year.
The developing U.S. biodiesel industry is enhancing vegetable oil values as the markets anticipate new demand from this growing industry. ADM's joint venture biodiesel plant in Mexico, Missouri will be operational next month, while our facility in Velva, North Dakota is projected to be completed in April of 2007. These two plants will have a combined annual capacity of 115 million gallons.
South America's results also improved. Crushing operations were better on similar volumes to last year. Fertilizer operations improved on higher margins. Construction is underway on our biodiesel plant in Rondonopolis. This plant is expected to be operational by late summer 2007 and will produce 50 million gallons per year of biodiesel from soy oil.
European results improved on strength in rapeseed and soybean crushing, biodiesel and specialty oil operations. Increased biodiesel volumes more than offset reduced biodiesel margins. The new German biodiesel taxes implemented in August have had a negative impact on biodiesel margins. A biodiesel mandate of 5% to 10% has been proposed in Germany and could be finalized in December. We are running our soft seed crushing and biodiesel operations at full capacity in Europe.
Our Europoort modification project is on schedule. This facility will be able to crush both rapeseed and soybeans when the modifications are completed in February 2007.
Asian joint venture operations delivered better results in the first quarter compared to a year ago due to improved palm operations and improved oilseed crush margins and volumes. Currently, however, crushing margins in China have declined as the price of soybeans has increased.
The U.S. is completing the harvest of a record soybean crop, which the USDA estimates at 3.2 billion bushels. This large U.S. crop, when added to last year's large crop from South America, point to an excellent supply of oilseeds for our crushing operations.
Turning to Corn Processing, in our Corn Processing segment, the operating profit for the first quarter 2007 was $290 million versus $136 million for the first quarter 2006. Sweeteners and Starches improved to $113 million from $92 million while Bioproducts improved to $178 million from $44 million.
Sweeteners and Starches profits improved primarily due to higher selling prices. We continue to see very solid demand for our Sweetener and Starch products. A substantial percentage of our 2007 Sweetener volumes are already under contract. We will report our average percentage price increase once all contracting is complete.
In ethanol our profits were up versus last share on increased prices. We benefited from the improved values of our April/September contracts. The ethanol contracting cycle is evolving as ethanol is blended year-round and market demand is less impacted by differences in winter versus summer blending. Today, our sales contracts are no longer heavily weighted to October/March and April/September delivery periods. In response to buyer references, contracting periods are now more varied. If completed, the permitting process for the 275-million-gallon ethanol plant in Columbus, Nebraska, and we expect to complete construction in about 24 months. The 275-million-gallon plant in Cedar Rapids is currently in the permitting process. U.S. is completing the harvest of the third-largest corn crop on record. USDA estimates this crop to be 10.9 billion bushels.
Turning to the Agricultural Services segment, in this segment, the operating profit for the first quarter 2007 was $111 million versus $20 million for the first quarter 2006. Last year's results were negatively impacted by hurricane Katrina. Storage, barge and global merchandising operations all improved relative to a year ago. ADM's transportation network continues to deliver strong performance as the industry faces the challenges associated with the availability of all forms of transportation. Continue to find ways to use the ADM network to add value to our operations.
In our Other segment, the operating profit for the first quarter 2007 was $76 million versus $95 million for the first quarter 2006. Wheat milling operations -- or wheat milling profits declined, volumes were flat, however, wheat prices had increased. Cocoa processing profits declined from a year-ago levels due to lower bean processing margins. Our chocolate business had comparable results to last year.
We broke ground for our Hazleton, Pennsylvania plant in September. This plant will be online in the first quarter of calendar 2009. We've expanded our industrial chocolate capabilities in Europe with the acquisition of Classic Couverture, a UK-based chocolate manufacturer.
Looking at our natural health and nutrition business, results in this business were unsatisfactory this past quarter. Expenses related to the business development in PHA and polyols are captured in this other segment and contributed to the decline in profits in this segment. Our PHA biodegradable plastics JV plant in Clinton, Iowa is currently in the permitting process, as is the Decatur propylene ethylene glycol plant.
That finishes my comments on our operations, and I will now turn it back to Doug for further comments on the financial operations.
Doug Schmalz - SVP, CFO
As you can see results of our financial operations -- by the way, we're still on page 6 of the slides -- results of financial operations increased $12 million to $38 million from $26 million last. That was primarily due to improved valuations of our private equity fund investments. Our corporate results were a charge of $73 million for the quarter compared to a charge of $77 million last year. The current-year quarter included a $17 million charge from LIFO inventory valuations compared to $9 million of LIFO income last year. The current year's quarter was positively impacted also by increased interest rates and higher levels of invested funds.
Moving to page 7 of the slides is a summary of our financial condition. Not a lot of change there. As you can see, our working capital increased $474 million due primarily to increased inventory values and quantities, and our working capital includes readily marketable inventories, which have a carrying value of approximately $3.4 billion at September 30. The increase in working capital was financed principally from the cash generated through earnings reflected in the equity increase of $483 million.
Turning now to page 8 is a summary of our cash flow highlights. As I mentioned previously, cash generated from operations was primarily used in support of the working capital increases. Our capital spending increased to $252 million as construction of many of our recently announced projects are starting to now get underway. We paid dividends in the quarter of $66 million and our remaining cash needs were met with our short-term borrowing facilities.
That concludes my remarks, and I will now it turn back to Patricia for q-and-a.
Patricia Woertz - President, CEO
Very good. Thank you, Doug and Brian. Operator, if you would please open the line for our callers to ask questions.
Operator
(OPERATOR INSTRUCTIONS). Eric Katzman, Deutsche Bank.
Eric Katzman - Analyst
I guess a few questions. I know obviously next week, we're all meeting, so you're going to lay out some plans at that time. But looking more at this quarter's results, I guess I was a little bit surprised that sequentially, and even just looking quarterly over the past year, that Sweetener and Starch profit hasn't been moving higher with the higher pricing in HFCS. Is that kind of -- strategically you're kind of at full capacity and you've priced and that's kind of all that we can get there? Or maybe you could go into that a little bit more.
Doug Schmalz - SVP, CFO
On HFCS pricing, Eric?
Eric Katzman - Analyst
Yes, in the Sweeteners and Starches segment.
Brian Peterson - SVP Corporate Affairs
Well, the price increases that we got in that segment were basically achieved at the beginning of this calendar year. So most of our sales in sweeteners are done on a 12-month basis. And so those prices remain pretty well constant throughout the year, throughout the calendar year. As we move into 2007, we'll see the results of the current round of negotiations and contracting. But I think it's reasonable to expect that our pricing in Sweeteners and Starches will remain relatively flat because the contracts are 12-month contracts.
Eric Katzman - Analyst
Okay. And then I guess, Pat, in the comments that you put out on the top of the press release, you talked about managing through the volatility and the challenges that that might bring. And, obviously, those of us who look at soft commodities have seen the volatility. But I guess kind of more theoretically, to a certain extent, isn't the Company kind of creating some of that volatility by pushing so much of the crop or expected crop into the fuel as opposed to food or feed? And isn't that something that we're just going to probably have to deal with in the future?
Patricia Woertz - President, CEO
Yes, thanks for the question, Eric. I guess my thoughts about volatility is just to continue to remind all of us that that's our business, and that we continue to experience challenges of volatility, we will in the future, we have in the past. It's what I think we do well. You asked about pushing crop. I think we are running continued volumes as we always have, and we manage around those good crops, as well as product outputs, and we do so around the world. So we take markets as we find them, so to speak, and we take those prices and those volatilities as we find them. We don't create those conditions, we deal with them as we experience them.
Another thing to maybe just keep in mind is, when I think about volatility of commodity prices, I also think about LIFO and LIFO adjustments that you take on each quarter as you find commodity prices and the situation that you find them. And, again, that's always something that's ahead of us, as well as you can look at the experience in the past and you can look at those commodity prices and see what might be ahead for us as well. So we don't forecast or we don't do outlooks or we don't give guidance as you know, but just kind of a general reminder, again, that we are in these times where things are up and down.
Eric Katzman - Analyst
One last quick one for Doug. Doug, it seemed like investment income jumped this quarter, and I'm kind of wondering, what's a decent run rate for that, or was there anything that was kind of unusual in the quarter for that specific line item?
Doug Schmalz - SVP, CFO
I think, Eric, if you look in comparison to where we were in the fourth quarter, we're very comparable. We were up just a little bit on investment income and down just a little bit on our interest expense. But in comparison to the previous quarter, we're about right on. So it has not changed a lot.
Eric Katzman - Analyst
Really? Because I have 60 versus 30.
Doug Schmalz - SVP, CFO
No, we had 58 last quarter in investment income.
Eric Katzman - Analyst
Okay, I will have to take a closer look. But, okay, see you next week.
Doug Schmalz - SVP, CFO
I know what you're doing -- you're doing it net.
Eric Katzman - Analyst
Well I got interest expense last quarter fourth quarter of 101 and investment income of 31, and then this quarter, you had interest expense of 97, and investment income of 61.
Doug Schmalz - SVP, CFO
It was 58 last quarter. I think you just had the wrong number.
Operator
[Michael Pipen], Cleveland Research.
Michael Pipen - Analyst
Good morning, I'm calling on behalf of Christine McCracken. A couple of quick questions. Just with respect to the new ethanol contracting methods, we do imply from that that maybe more sales are going to be taking place in the spot market than we have seen historically, or how are the new contracts working, if you can provide a little more detail on that?
Patricia Woertz - President, CEO
Maybe I will start on that one, and Brian, you can jump in. I think what we're seeing is more response to a customer demand for both longer-term contracts, as well as shorter-term, but not a lot of spot. So the shorter term might be something somewhat less than the six months or maybe as long as a year. So we are experiencing a variety of requests and interest on the part of customers to -- for the length of time for these term contracts. I think you can still see very little, a very small percentage of our sales being on the spot base.
Michael Pipen - Analyst
So if we were to look forward though on the ethanol prices, spot prices have obviously come down some from where they were earlier this summer, but if we were to look forward in terms of forecasting this October through March period kind of compared to where we were during the April through September period, do you have a feel for directionally where we would see ethanol prices then?
Patricia Woertz - President, CEO
I know that's tough, Michael. It's kind of one of those darned if you do, darned if you don't issues that it's actually less -- you probably have less ability to look forward and forecast prices because we have such a variety of contract timing here. We realize that is probably not a satisfactory answer, but it's just the way the market presents itself.
Michael Pipen - Analyst
Then also on Ag Services, just looking at that and the performance in the last quarter, what do your see as the opportunity with the growth in the renewable fuels and how that will impact some of your storage and shipping opportunities? And what would you say is sort of a good run rate going forward because it was a very strong quarter?
Brian Peterson - SVP Corporate Affairs
Michael, we have good crops again this year, so the outlook I think for our Ag Services division should have some good opportunities again going forward. Transportation sector remains robust. We have good demand for our barge services and rail transportation services. We think there will be good storage opportunities again. And again, we have, as Pat mentioned earlier, we do have this volatility in the markets. There's some geographic disparity between supply and demand which creates some global merchandising opportunities for us. So although we don't make projections, we think the scenario is such that there should be some reasonably good opportunities going forward for our Ag Services.
Michael Pipen - Analyst
And then finally, in the Food and Feed Ingredients segments, how much of the performance this quarter was due to the fact there's been a drought in Australia that has been particularly severe as well as crop reductions elsewhere. How much do some of these global issues impact that segment of the business?
Brian Peterson - SVP Corporate Affairs
Were you referring to our wheat segment?
Michael Pipen - Analyst
Yes.
Brian Peterson - SVP Corporate Affairs
Well, I did mention that wheat prices were up. In the U.S., we are finding adequate supplies of wheat, but it's true in some regions of the world -- Australia, Eastern Europe -- there has been drought conditions, and that has had an effect on wheat prices around the world, including the U.S., although we continue to have an adequate supply here in the U.S. We're also looking forward to new crops, which seems to be off to a very good start with adequate moistures in the winter wheat belt.
Michael Pipen - Analyst
Okay, great. I will leave it there. Thanks.
Operator
Kenneth Zaslow, BMO Capital Markets.
Kenneth Zaslow - Analyst
A couple of questions. Going back to the volatility, I thought ADM tended to thrive on volatility of commodity markets, that's what you guys do well. So is it really more of a LIFO issue that you're trying to bring to our attention, or is it more of the -- because volatility, again, as -- I thought you guys did pretty well with volatility?
Patricia Woertz - President, CEO
Thank you for that complement, Ken, I think we do too. So I think it's just to remind all of us that you can't predict markets. There is lots of uncertainty. Certainly, LIFO is one I mentioned, so I think it is a broad issue.
Kenneth Zaslow - Analyst
Okay. And in terms of the contracting for ethanol, and not to beat a dead horse here, for this quarter plus the two quarters, those are still done on the old way of doing things where you had the six-month contracts, and then for the April to October, is that where things really change, or it does it change today, just to try to get it into our heads?
Brian Peterson - SVP Corporate Affairs
Well we are starting to see a change today. In the terms of the length of contracts that Pat referred to, as she said, we have three-month contracts, we have six-month contracts, we have contracts that are longer than that period of time. So I would say that it's starting to change now. That is, the October/March period, which we're in right now, is not -- our contracting has not gone away that it has historically gone.
Kenneth Zaslow - Analyst
And then going forward then, how is the best way for us to monitor the ethanol contracts that you're going to be getting? I understand that you're not in the spot market. Do we still think about it as gas prices plus or minus some sort of spread?
Brian Peterson - SVP Corporate Affairs
Yes, that's the way the ethanol will break, yes.
Kenneth Zaslow - Analyst
And then the recent decline in the gas prices, has that had an impact at all on your earnings going forward, or again, because of the contract, the brief decline, how will that affect earnings going forward?
Brian Peterson - SVP Corporate Affairs
We are not projecting our ethanol prices we have contracted, so I really could not comment on that, Eric. We have a mixed bag of contracting here, and I think that we're just not going to predict which direction our ethanol pricing is going in the future.
Kenneth Zaslow - Analyst
And then just one broad question. How do you see farmers' acreage moving into next year, given all of the wheat prices, corn prices and soybean prices -- how would you guys think that's going to actually affect the acreage next year?
Doug Schmalz - SVP, CFO
The soybean corn acreage right now is actually quite favorable for the movement of acres from soybeans to corn. I think farmers making the calculation will see where the opportunities are. I think historically, at the kind of level we are right now, which is around 1.9 ratio, that we would anticipate seeing a pretty good movement of acres from soybeans to corn.
Kenneth Zaslow - Analyst
Great, thank you very much.
Operator
John McMillin, Prudential Equity Group.
John McMillin - Analyst
Good morning, everybody. I like the slides, congratulations on the earnings. Doug, the geographic mix, I guess you're just talking about more earnings coming from outside the U.S.?
Doug Schmalz - SVP, CFO
Yes, it's just -- between the difference, we have movements of those profits every year, so they do move around on us, and we just continue to look at that every quarter and we will adjust rate as we go if that changes. But right now, that's where it's that, and that's what has caused it.
John McMillin - Analyst
Is this 30% rate sustainable, given you have a competitor at [four]?
Doug Schmalz - SVP, CFO
(multiple speakers) percent, but I think we're usually pretty close, within 1% of that. I would say yes.
John McMillin - Analyst
Okay. And the statement regarding HFCS contracting substantially completed, that is a little bit in contrast to what [Corn Products] said last week. Do you see yourself ahead of your competitors, in terms of contracting?
Patricia Woertz - President, CEO
One thing I might say to that, John, and Brian, you may want to add to this, is we probably won't comment about our competitors, but what we can say is, we have substantially had discussions and completed our next calendar year with our customers. And as we usually do, we'll report on that after the first of the year in a finite way with respect to the price adjustments.
Brian Peterson - SVP Corporate Affairs
I have nothing really to add.
John McMillin - Analyst
Because that is different than what we heard last week, just to point that out. The quantities, Brian, that you mentioned, can you quantify the quantities, in terms of the higher inventories? I guess some of that is tied to selling fructose for next year, or just give me the inventory number on the balance sheet?
Brian Peterson - SVP Corporate Affairs
Excuse me, John, I'm not following you.
John McMillin - Analyst
Okay. Obviously, corn has gone up a lot. I guess I'm trying to gauge to what extent you've kind of loaded the barn like you did last year. You mentioned in your prepared remarks that the quantities of inventory, not only the level of inventories as dollar numbers were up, but you mentioned that the quantities were up in terms of your inventories. I was just wondered if you could --.
Doug Schmalz - SVP, CFO
John, I mentioned that and if you looked at our overall working capital increases, a lot of it's due -- it's partially value and it's partially volume that we're up. We're in a situation where the crop of good, came in. We tend to build during the inventory levels per se generally during the second, third, and then it starts coming back off into the fourth. So nothing abnormal, I don't think, it's just, we are up.
John McMillin - Analyst
Last year was a little bit abnormal, Doug.
Doug Schmalz - SVP, CFO
I know it was.
John McMillin - Analyst
And now you're telling me that you own more corn than you did last year, or more inventories per se.
Doug Schmalz - SVP, CFO
No, I never said I had more corn, I said we have more quantities, period. I mean, that's all of our commodities.
John McMillin - Analyst
But you clearly loaded up --.
Doug Schmalz - SVP, CFO
It's worldwide.
John McMillin - Analyst
Okay. I'm just gauging to what extent -- I mean, Pat, you mentioned in the press release about volatility. We all know the obvious threats of higher corn and lower oil. And when you mention it, it kind of puts a little bit of a fear in people and I'm just trying to minimize it, because it seems to me you're loaded up the gazoo in corn for inventories, and that has kind of minimized that threat. Is that correct?
Patricia Woertz - President, CEO
I like your questions, John. I kind of put --.
John McMillin - Analyst
Somebody likes me.
Patricia Woertz - President, CEO
I put volatility into all categories, whether it's all grains, all petroleum products, it's natural gas, it's oils, it's -- we managed through all of this. And I guess my reminder is just that you cannot predict the future and we're in the winter months here as we go forward. We don't quantify the exact inventories, so I'm not going to answer that question as we don't. But just a reminder going forward on all volatilities across all commodities.
John McMillin - Analyst
I appreciate the slides, I appreciate the friendlier answers, but in some ways, I think when you talk about new ethanol contracting, you have to -- you're leaving the impression that you're no more exposed than you were in the past to declining ethanol prices, in terms of your contracting methods. Is that correct, because some are longer, some are shorter?
Patricia Woertz - President, CEO
I think that's about correct. I think that's right -- that's right. We're getting some longer, some shorter. And it's actually based on, again -- maybe Brian's comments in the beginning were important. Customers are using more quantities of ethanol more throughout the year, and it's in response to their receipts, their loading operations. It's in response to the system. And I think that's a good thing. It's a system that's becoming more used to and comfortable with constant volumes of ethanol, and that's going to evolve.
John McMillin - Analyst
Two more quick questions just on crystalline fructose and these trans fats, soybean-oil-reducing trans fats. I went to the Pepsi meeting where they talked about new sweetener technology, and I see all of their new waters have this crystalline fructose, which is somewhat of a specialized product. Are you in an advantaged position here making crystalline fructose while some of your competitors don't?
Doug Schmalz - SVP, CFO
I cannot comment as to whether we're in an advantageous position. We do make crystalline fructose, but it's a relatively small operation for us, John. So I don't know how we stand relative to our competitors.
John McMillin - Analyst
Well, it's obviously getting bigger. What's the properties of it? It must have less -- is it less calorie? Is it -- I know it's a further process fructose, but why is Pepsi so excited about it?
Doug Schmalz - SVP, CFO
It's a purer form of fructose. But, if you want to go beyond that, you're going to be testing my technical competence here, which I (multiple speakers).
John McMillin - Analyst
Which is higher than mine.
Patricia Woertz - President, CEO
We (indiscernible) fructose here, John, we'll have to get back to you.
John McMillin - Analyst
Get me the answer next week. And just all this news about trans fats being taken out of Kentucky Fried Chicken and so forth -- to what extent is that an opportunity for you?
Doug Schmalz - SVP, CFO
Well, it is a real opportunity for our NovaLipid line of low and zero trans fat vegetable oil products. We've been working with a lot of our customers, all of our customers for that matter, as they try to reformulate around this trans fat issue. So we have had a very good response from our customers, and our NovaLipid line, which involves technology, it involves blending, it involves a number of approaches, is solving our customers' issues regarding these trans fats. And so we think we're very well positioned to continue to grow our sales of this product line.
John McMillin - Analyst
Okay, thanks again.
Operator
Diane Geissler, Merrill Lynch.
Diane Geissler - Analyst
Good morning. Just a philosophical question on the fructose business. When you set your contracts, do you generally try to hedge the input once you know what your pricing will look like for the full year?
Doug Schmalz - SVP, CFO
Yes, we do. We try to the hedge as best we can and minimize any price risk that we are creating by virtue of our sales.
Diane Geissler - Analyst
So, should we read into that with kind of was has happened in the corn market that you would go ahead and hedge at these high levels? Or, would you -- I have to believe as a user of the product, you have better [G2] about kind of where you expect corn prices to go as we move through the rest of the calendar year and into next year. Would you leave yourselves unhedged if you felt corn was a little overpriced at these levels? Or, would you just go ahead and book it in?
Doug Schmalz - SVP, CFO
That's a very good question, and I think that hedging is, as we've described before in our corn operations, is a complicated operation because you have a lot of moving parts. We have the byproducts, the corn gluten feed and these things, which all work to help corn oil and so forth, which help to create a net corn cost for us. So what we're interested in is achieving the lowest possible net corn cost that we can. But, yes -- generally speaking, we would be looking to cover our corn or price risks as we make these HFCS sales. I could also point out, however, that part of our business is on a toll basis where we really don't have the price risk on the corn.
Diane Geissler - Analyst
Okay. And your volume is dropping out a little bit. I'm not sure if you're moving away from the microphone or not?
Doug Schmalz - SVP, CFO
The volume on -- okay, the sound. (multiple speakers). Okay, can you hear me okay?
Diane Geissler - Analyst
Yes I can, thank you. I guess I just look at it, and if you're already contracting in for next year or have contracted in the bulk of your business, and I guess I'm wondering about the -- what has happened in the corn market. And obviously with corn prices moving up, that's leverage that you use with your customers, if you want to think of it that way, in terms of how you negotiate your pricing contracts. Is that reasonable to assume that, not only have you used the tightness of the supply of capacity, but also kind of what is going on in the underlying commodity market?
Doug Schmalz - SVP, CFO
Well, I think that the prices for HFCS, as all of our commodities that we sell here -- all of our products that we sell, are determined by the supply-demand situation. And right now, on HFCS, we have really a pretty favorable supply-demand situation. Demand has been very strong. We have had Mexico come into the market, we have had some -- seen some growing domestic HFCS volumes, and so it's really determined by the supply-demand. Of course, we talk about higher corn costs, we talk about inadequate returns and those sorts of things, which are all reasons why prices shouldn't go up. At the end of the day, it's the supply-demand calculation.
Diane Geissler - Analyst
Okay, I appreciate that. And then I guess on just the oilseeds, when I look back historically since you've provided the segment data in your current method, it seems like the September quarter has generally been -- not in every year, obviously -- but has generally been a lighter quarter than what we see in December, March and June. Is that -- I mean, look, your September quarter was pretty phenomenal here, so I guess I'm just -- should I read something into that about where the -- we should look for the business to go over the next three quarters? Do you expect it to accelerate from here?
Brian Peterson - SVP Corporate Affairs
Well, again, we aren't going to predict as to the earnings of our Oilseeds segment, but I think that we have a mix of things that we're looking at. In North America, we have a very favorable situation right now, we have a very good crop of soybeans, we have very strong demand for our products, we have growing demand for the oil portion of the oilseeds coming from the development of the biodiesel business. We have had better margins in South America. I refer to my prepared comments to China where we are seeing higher prices for soybeans. And typically in China as the soybean price moves, we don't see quite as an immediate reaction on product prices. So margins in China may not be quite as good going forward.
In Asia -- or excuse me, in Europe -- for the past year or longer, we have had extremely good results in rapeseed crushing and in biodiesel operations there. I commented that we are dealing with a tax situation now in Germany on biodiesel, which has had an impact on margins. We also are looking in Europe at a smaller rapeseed crop, which is having an effect. But these are still good operations. And I should also point out that on biodiesel, in spite of low margins, our volumes are increasing there. So we continue to look for good results from our European operations. So it's a mixed -- bottom-line, Diane, it's a mixed bag, and we're not going to make a prediction as to what our earnings are going to be.
Diane Geissler - Analyst
Okay and I guess I missed your comments to John on the tax for the full year?
Doug Schmalz - SVP, CFO
Yes, I think within 1% of the 30 I think is reasonable at this time, and we'll update every quarter as we go forward as that mix may change. But we think that's about right.
Diane Geissler - Analyst
Okay, perfect. Thank you.
Operator
Ann Gurkin, Davenport.
Ann Gurkin - Analyst
I wanted to start with HFCS capacity for the industry in the U.S. Is it running around 97% still, [cash] utilization?
Brian Peterson - SVP Corporate Affairs
The HFCS capacity or corn [grind], you're talking about?
Ann Gurkin - Analyst
HFCS capacity.
Brian Peterson - SVP Corporate Affairs
No, it would be less than that.
Ann Gurkin - Analyst
Do you a number?
Brian Peterson - SVP Corporate Affairs
No, I don't have one, but it would be less than that.
Ann Gurkin - Analyst
In terms of your excess kind of swing capacity, is it still getting directed towards ethanol, or is any of that getting moved back to HFCS production?
Brian Peterson - SVP Corporate Affairs
Well, we have good profitability in both of those products right now, and it's not just a question of shifting it back and forth between HFCS and ethanol. We also have some other products that we make in bioproducts where we do have some swing capability. But, yes, we do have approximately 20% extra capacity at the back end of our corn plants that enable us to swing the starch stream to where we have the best profitability.
Ann Gurkin - Analyst
So where is that going right now?
Brian Peterson - SVP Corporate Affairs
Well, it's going to ethanol and it's going to HFCS.
Ann Gurkin - Analyst
Okay. I don't know if -- you might want to talk about this next week, but where is ADM in terms of developing other sources of ethanol -- cellulosic or other examples of renewable fuel? Can you talk a little bit about where you are in that technology?
Patricia Woertz - President, CEO
Actually, thanks for the question Ann, and maybe I will defer it to next week because we are going to try talk a little bit more about the longer-term and spend a little bit of time on several years out and some direction and so forth. So if I could, just stay tuned until next week. Thank you.
Ann Gurkin - Analyst
That's fine. Can we just get a CapEx number for this year?
Patricia Woertz - President, CEO
We aren't doing it by year, but we talked last time about the $2.4 billion over the next three years. And actually, I will have a slide on that next week as well to try to show even out a couple of years beyond that.
Ann Gurkin - Analyst
That's great, thanks.
Operator
David Driscoll, Citigroup Investment Research.
Cornell Burnette - Analyst
Hello, this is Cornell Burnette calling in on behalf of David Driscoll. Good morning and congratulations on the quarter. I just had a quick question really regarding your North American Oilseeds Processing business and biodiesel. I just want to get your views on the sense of all of this new biodiesel capacity that's currently being built and coming to the market. How do you see that playing out on the North American processing market? Will you see kind of similar results as to what we see in Europe where you will be running your plants at very high utilization rates? I think the NOPA data kind of seems to suggest that right now. And then secondly, what type of impacts do you see happening to the vegetable oil markets and prices for soy oil and other vegetable oils? And basically, is the growth in biodiesel one of the biggest drivers that you can see next year for that division?
Brian Peterson - SVP Corporate Affairs
Well, we think the growth in biodiesel presents a great opportunity for our -- not only for biodiesel, but also for our North American crushing operations. We have, as these new biodiesel plants are anticipated to come onstream, and they start -- ours, we have one coming onstream next month, and then one in the spring of '07. But other people are building them also and they're going to be phased in over '07 or first half of '08. The market is already anticipating the demand from these biodiesel plants, and I think that we're seeing a strengthening of oil basis in the U.S. We are seeing just the flat price at the Chicago Board of Trade, we're seeing increased relative to a year ago. We are also seeing the oil share of the product value from soybeans increase relative to a year ago. So I think these are all trends which could have been anticipated and I think are a direct result of the growth of the biodiesel business. So I think this is favorable, both obviously four our biodiesel operations which we'll start up here in the near future, and we hope to start contributing to the profitability of the Company. But secondly and perhaps more importantly, the effect on our North American crushing operations, we expect to be favorable.
Cornell Burnette - Analyst
Thank you.
Operator
(OPERATOR INSTRUCTIONS). [Ian Horowitz], Soleil Securities.
Ian Horowitz - Analyst
I had a couple of questions. First of all, do you have a number for the ethanol marketing volume (indiscernible) represent?
Patricia Woertz - President, CEO
I'm sorry, Ian, I don't think we heard the end of your question. You kind of tailed off there.
Ian Horowitz - Analyst
The marketing volumes for ethanol, so not equity production, but those that you represent on a third-party basis?
Doug Schmalz - SVP, CFO
Well, we do have some -- you're taking about third-party ethanol that we market?
Ian Horowitz - Analyst
Correct.
Doug Schmalz - SVP, CFO
Okay, okay. I don't have a number on that. It's relatively small. We produce about 1.1 billion gallons that we market of our own production, and we do a small amount of third-party, but it's not terribly significant.
Ian Horowitz - Analyst
Is that a number that I could pick up from one of you guys next week, or is that something you're not going to release?
Doug Schmalz - SVP, CFO
I could check into it we could probably address it next week, but it really is insignificant.
Ian Horowitz - Analyst
Okay. Can we talk about Velva, North Dakota, and what you're kind of forecasting in terms of a local canola [poll] versus importing, bringing the product in from [disparate] markets?
Brian Peterson - SVP Corporate Affairs
Well, is the question -- will we have to import canola from Canada for our --?
Ian Horowitz - Analyst
Not only from Canada, but just from other geographies, and what your impact is going to be on the local canola market.
Brian Peterson - SVP Corporate Affairs
North Dakota has -- where our plant is located -- Velva, North Dakota -- North Dakota has a growing canola crop there. But also obviously as you are aware, there is a lot of canola growing in Canada too. So it's possible that some of it may move back and forth across the border as the markets dictate. But I would not envision canola coming to North Dakota from anyplace, other than North Dakota or Canada. It certainly won't be coming from Europe.
Ian Horowitz - Analyst
I guess I'm just trying to figure out what percentage you think you will be bringing in outside of the local Velva poll --.
Brian Peterson - SVP Corporate Affairs
It will be largely supplied with North Dakota-grown canola seed.
Ian Horowitz - Analyst
And the Decatur, the propylene glycol plant, you're putting that in the Other category. Will that stay in the Other category, or will that move into something -- another category as we go into production?
Brian Peterson - SVP Corporate Affairs
We plan to leave it in the other category as we start that plant into production, yes, that's where it will stay.
Ian Horowitz - Analyst
And any comments -- you guys are putting up a significant amount of biodiesel capacity in North American relative to the market, at least as it stands today. I mean, there's plenty of capacity coming online. But any comments on the dollar credit that we see in 2008, what you're trying to do and who you're talking with and what the general opinion is, just a little color around that subsidy?
Brian Peterson - SVP Corporate Affairs
Well, first of all, I think that the two plants that we're involved in with a total capacity of 115 million gallons is really pretty small. We will not be a major player with those two plants in the U.S. biodiesel market. But as to your question as to the $1 tax credit, right now, there is a lot of discussion really across the political spectrum about the need for our country to have a nationwide energy policy that really supports renewable fuels. So, although we don't know obviously what the tax credit will be, we are very optimistic and encouraged by all of the positive comments we're hearing coming from Washington, and really from various state governments, about the need to support the development of a domestic renewable fuels industry.
Ian Horowitz - Analyst
I understand that you're pretty small, it's a fair -- what you're considering small though, I think a lot of biodiesel developers out there would love a 150-million-gallon footprint. But, still, at that kind of volume, it's a fairly decent CapEx. So I'm assuming that you're forecasting out something well beyond 2008, in terms of this subsidy being in place.
Brian Peterson - SVP Corporate Affairs
Well, as I said, we think the political atmosphere right now, which is very encouraging for renewable fuels, so you will just have to take it at that.
Ian Horowitz - Analyst
One last question and then I will get back in queue. You're talking about -- we have talked a lot about commodity volatility, and then there was a question I think from Ken about the acreage shift. As we look out, we have a sub-billion bushel carryout on corn, over 3 billion gallons of ethanol at least scheduled to come online. We will see if it all does. And then, we have a significant -- over 1 billion gallons of biodiesel coming online in North America alone, and that is all on top of the typical food and feed markets. You said that there was a decent shift towards corn from the beans, but isn't this going to put significant pressure on the bean oil pricing and make biodiesel even less profitable, subsidized or unsubsidized, than it is today?
Brian Peterson - SVP Corporate Affairs
Well, I guess one could speculate that if oil, that if vegetable oil prices go up, which is a principal raw material for biodiesel, and the oil markets do not go up, or do not permit higher pricing on the product side, that the margins would be less in that business. But these are obviously -- the oil market; that is, the mineral oil market, is a very volatile market right now. The prices, the current level of prices, I think support profitability, sustained profitability in the biodiesel, even at higher vegetable oil prices.
Ian Horowitz - Analyst
Okay, great. Thanks, guys, I'll get back in queue.
Operator
At this time, I would like to turn the call back over to Patricia Woertz for closing remarks. Please proceed, ma'am.
Patricia Woertz - President, CEO
Very good. Thank you, everyone, for your interest, and we are very excited about our performance this quarter and continue to want to earn your confidence as we go forward. We're looking forward to seeing many of you next week for a multiple-hour session together. We will have our entire extended leadership team there and many will present both details about our current business as well as a bit of looking forward to the future. So thank you again for today and I look forward to seeing you next week. Bye-bye now.
Operator
Thank you for your participation in today's conference. This concludes the presentation, you may now disconnect. Have a wonderful day.