Archer-Daniels-Midland Co (ADM) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen.

Welcome to the first quarter fiscal 2009 ADM conference call.

My name is [Nora] and I will be your conference facilitator for today.

(OPERATOR INSTRUCTIONS) I would now like to turn the call over to Mr.

Dwight Grimestad, Vice President of Investor Relations.

Please Proceed, Sir.

Thank you Nora.

Good morning and welcome to ADM's first quarter earnings conference call.

Before we begin, I would like to remind you that we are webcasting our call and that you can access it at ADM's website, www.ADMworld.com.

The replay will also be available at that address.

Slide two has the company's Safe Harbor Statement, which says that some of the comments constitute forward-looking statements that reflect management's current view and estimates of future economic circumstances, industry conditions, company performance and financial results.

The statements are based on many assumptions and factors, including availability and prices of raw materials, 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.

Slide three lists the matters we will discuss in our conference call today.

I will now turn the call over to Chairman and Chief Executive Officer, Pat Woertz.

Thank you, Dwight, and good morning, everyone.

As is our custom, I would like to open with a safety comment.

We will remain intensely focused on achieving our goal with zero injuries, zero incidents, and we have made further progress and steady progress since our last call.

We've reduced lost workday frequency by 3% and total recordable incidents by 6% from our full year fiscal 2008 results.

Our global lost workday injury rate is now less than half the US national average.

Of course safety is not about numbers.

It's about people, and our results do mean that more colleagues than ever before are going home safe every day.

This morning, we reported record quarterly net earnings of $1.63 per share or just over $1 billion.

This exceptional performance demonstrates, again, the acumen of our people and their ability to leverage our global network and our strong financial position to recognize and act on opportunities when they arise.

In a moment, Steve will walk through the financial results and the current business conditions for each segment.

I would just like to highlight a few factors influencing our performance this quarter.

Last quarter on our conference conference call, we described current conditions as we described them.

And we did see some slowing trends starting to emerge.

Then market volatility continued and what was new was the even later than expected harvest in the US and the shifting supply sources as crop conditions improve significantly outside the US.

Now, while to some this may have posed a challenge, to us it posed an opportunity.

In fact, a lot more opportunity than we saw at the time of the call and we had the balance sheet, the cash, the credit rating to act on those opportunities.

Of course results don't come automatically, even with financial strength.

This was a quarter to be vigorous, to move fast and to capture value and I think it was very well handled by ADM's management team.

We have been positioning our company to take the most of opportunities when they arise.

As you will recall last year we reorganized, we eliminated some positions, we flattened our structure.

We put in place new controls on some discretionary spending and we continue to operate our company very tightly and very resourcefully.

And to execute in a range of environments, and that's I think what we did very well.

What a great way to kickoff the fiscal year with a strong quarter that illustrates all the underlying strengths of our company.

Now, in Cedar Rapids during an investor and analyst day this past -- last month, we recapped our long-term strategic positioning and our value chain and how we're executing against this value chain.

And the three growth areas; diversifying feed stock, expanding the geographic scope of the model and growing our bioenergy business.

We continued to execute against this strategy and we've completed several important transactions recently.

First, as we focus our resources on the most significant opportunities for ADM, our announced divestiture of our molting business to Malt Europe closed on August first.

We received regulatory clearance for the acquisition of the Campa crush plant in southeast Germany.

We closed that transaction last week.

We also announced a packaged oils joint venture with Associated British Foods.

This is a great move for ADM.

It will improve our plant capacity utilization.

It will leverage our origination and processing capabilities, while we build on our partners' access to higher value markets.

I'm also pleased to announce this morning a new joint venture with [Grupo Cabrera] to produce sugar cane based ethanol in Brazil.

You'll see a press release on that later this afternoon.

We are very pleased about this venture.

Let me give you just a little background.

We believe we have the right opportunity and the right partner.

The partnership brings together the Cabrera organization's deep knowledge of sugar cain and expertise in regional agriculture and our expertise in ethanol production and marketing.

The investment by the joint venture will be around $500 million over seven years, about 370 of that will be ADM share.

And we expect to reach about six million metric tons of sugar contain crushed per year, with about half of that cane used to produce about 70 to 90 million gallons of ethanol per year.

Overall, I'm very pleased with our quarter, while around us we see uncertainty and change, we remain well positioned and confident because of the fundamental strengths of our company.

Our global network, our business model, our strong financial position, and driving it all, the insight and expertise of our people to capture the opportunities and create value.

So I'll turn it over to Steve now and we'll be back later with John, Steve and I for Q&A.

Steve?

Thanks, Pat, and good morning, everyone.

Moving to Slide five, you'll see the statement of earnings highlights for this quarter.

Net sales and other operating income increased 65% to $21.2 billion for the quarter ended September 30, due principally to higher average selling prices, resulting primarily from year-over-year increases and underlying commodity costs.

Sales volumes were comparable overall, with increases in sales quantities of merchandised oil seeds and ethanol, being offset by decreased sales quantities of vegetable oil and protein meal, as well as merchandised wheat.

Gross profit this quarter more than doubled to nearly $1.9 billion, as operating margins expanded significantly in oil seeds processing, ag services, and cocoa, wheat and malt.

In addition, the steep decline in commodity prices between June 30 and September 30 resulted in a large decrease in our LIFO inventory reserve, which positively impacted gross profit by approximately $450 million.

And I'll talk in more detail about LIFO later on during the call.

Selling, general and administrative expenses increased 16% to $409 million for the quarter, due principally to higher employee related costs, increased provision for doubtful accounts, and the impact of foreign currency translation.

Our financing costs net, which consists of interest expense less investment income, was $75 million for the quarter, up from $25 million last year, principally due to higher interest expense related to increased levels of long-term debt.

Our effective tax rate for the quarter was 29.7%, down nearly 2% from last year -- last fiscal year's tax rate, due principally to changes in the geographic mix of pretax earnings.

We expect our full year rate to be in the 30% range.

And as Pat mentioned and as you've read, our net earnings for the quarter increased 138% to $1.05 billion and earnings per share increased 140% to $1.63 per share, due principally to record segment operating profits and to the decrease in our LIFO inventory reserves.

Slide six shows certain items shown here on an after-tax basis that impacted the comparable fiscal 2009 and 2008 first quarter's results.

With the steep decline in commodity market prices between June and September, our LIFO inventory reserves have decreased approximately $453 million for the quarter, $282 million after-tax compared to a pretax charge of $83 million or $51 million after-tax for last year's first quarter.

There are a few other less significant items laid out here on the chart and a more detailed by segment summary of these items has been included in the appendix to this presentation.

A comparative overview of our operating profit by segment is shown next on Slide seven.

Total segment operating profit for the quarter increased 48% to a new quarterly record of $1.176 billion and we can turn straight so Slide eight to begin the review of each individual segment.

Slide eight looks at the operating profit of our oil seeds processing group.

Oil seeds processing operating profit was very strong this quarter, increasing 144% to $510 million, up from $209 million last year.

We continue to benefit from our global footprint and our product line diversity in oil seeds, including soft seed and refining and packaging operations.

Crushing and origination results improved $208 million to $339 million for the quarter.

As global crushing margins improved across all of our major processing businesses.

One key factor was our North American raw material positioning coming into this quarter, anticipating generally tight soybean availability and allowing us to generate very good margins.

We also benefited from the elevated volatility in both commodity and freight markets, the tight carry-out of soybeans in North America from old crop to new crop, and the better early harvest conditions in Europe.

Additionally, year-over-year fertilizer results improved in South America, as sales volumes increased on strong demand.

Refining, packaging, biodiesel and other results improved globally, increasing $44 million to $106 million for the quarter.

Generally reflecting better margins due to good demand for vegetable oil and increased average selling prices for value-added soy products, such as isolates, concentrates and vitamin E.

Results improved in North America, reflecting improved margins on slightly lower sales volumes and also due to positive impacts from plant rationalizations and optimization steps we have taken over the last 12 months.

Biodiesel results have improved, especially in Brazil, with our new biodiesel facility at [Rondanopolis], Brazil.

Oil seeds results in Asia increased $49 million due principally to increased earnings related to our equity investment in Wilmar International, Limited.

And as a reminder, we record results from this investment one quarter in arrears, so this quarter we are including Wilmar's June results, results which showed significantly improved palm and soybean merchandising and processing income.

Taking a look at current market conditions for oil seeds processing, the soybean harvest is nearly complete in North America and soybean carry-out stocks have been growing in the US.

There is a good supply of soybeans today, but farmers have been reluctant to sell at current price levels.

South American farmers are planning a similar number of soybean acres as last year and we are seeing a slowing global rate of growth for protein meal as the larger supply of world wheat is displacing soy protein meal in some feed rations.

Globally, USDA projects protein meal demand for crop year '08-09 to slow to a 2% to 3% growth rate, down from the last -- from last year's 7% to 8% rate and down from an historical 4% to 5% growth rate.

In the US, crushing rates are down in response to the slowing protein meal demand.

The USDA projects that the '08-09 North American soy crushing rate will drop slightly from 1.81 billion-bushels to 1.76 billion-bushels.

Global vegetable oil inventories are similar to last quarter end.

We see bust biodiesel demand in Brazil driven by the implementation of the B3 mandate.

And while we adjust our oil seeds crushing rates as necessary to balance supply with demand, we are confident in the long-term growth of both meal and oil demand and are continuing with our previously announced incremental North American capacity expansions.

And as Pat mentioned, this quarter we bought a [rape] seed crushing plant in Southeast Germany to meet growing needs in eastern Europe.

And we're excited about our recently announced joint venture with ABF, which will be a premier vegetable oil company giving us new opportunities as we serve the packaged food and food service markets.

Moving to corn processing on Slide nine.

Overall this was a difficult quarter for corn processing, as we were faced with the multiple challenges of very high corn and energy costs and significantly weaker ethanol margins.

Sweetener and starch operating results decreased 61% in the quarter to $65 million and bioproducts results decreased 37% to $53 million.

Net corn costs were sharply higher for the quarter and were also negatively impacted this quarter by mark-to-market losses on corn futures and options used to economically hedge sales obligations.

Production rates were good, increasing about six million-bushels, or 3% from last year's first quarter and we have recovered well from the fourth quarter this past year's problems caused by the Midwest floods.

However, manufacturing costs have increased year-over-year, due principally to significant price increases for natural gas and to a lesser extent, electricity, coal, chemicals and enzymes.

Average selling prices increased for sweeteners and starches due to price increases this calendar year versus 2007 and sales quantities also increased, mainly due to industry supply problems caused by the June floods.

In bioproducts, average selling prices for both ethanol and Lysine increased.

Sales quantities for both these products also increased.

Our ethanol sales volumes are up, due principally to our growing US and foreign ethanol merchandising program and additional marketing agreement volumes.

Looking at current market conditions, harvest is well under way in North America and the USDA is projecting the second largest crop at a little over 12 billion-bushels.

Crop prices and co-product values down from their highs and of course we typically benefit from lower corn prices in the longer term.

Ethanol margins remained under pressure, as the industry deals with new ethanol production.

Poor ethanol margins have caused some suppliers to close their plants and others to delay construction of new facilities.

In addition, ethanol selling prices are now above unleaded gasoline prices, which may also slow the expansion of ethanol into new markets.

Lower year-over-year carbonated soft drink consumption levels have reduced US corn sweetener volumes for the industry, although volumes in Mexico are growing.

We see good demand for our entire portfolio of corn products and have incrementally expanded production for Lysine, [thionine] and yeast.

We've recently announced a list price increase for sweeteners and starches and are approximately halfway through our 2009 contract negotiations with our customers.

These price increases will cover our increased production and raw material costs.

Our major corn processing construction projects continue on schedule and we have added a slide in the appendix giving you the latest time line and total estimated costs.

Let's now turn to Slide ten and look at the operating performance of our agricultural services segment.

Operating earnings for the quarter were $428 million, up nearly $200 million, or 87% from the first quarter of 2000 -- fiscal 2008.

In merchandising and handling, we began this quarter anticipating that the US would be facing tight inventory carry-outs from old crop to new crop and that the US harvest would be delayed.

This, coupled with our market Intelligence, global network and financial strength provided us with excellent volume and margin opportunities.

Hurricanes and flooding on the Illinois river made operating conditions for our transportation group very challenging during the quarter and in the circumstances we are pleased with our results that are comparable on a year-over-year basis.

Large freight rates have increased while volumes shipped decreased, reflecting restricted barge availability and substantially higher logistical operating costs, particularly fuel prices.

Looking at the current conditions, we have had strong operating conditions in ag services created by market volatility, global shifts in sources of grain supplies and the late US harvest extending the enhanced margin opportunities we saw last year.

Larger supplies of wheat from Europe and Australia will displace a portion of US exports.

World wheat production reached a record 680.2 million tons.

We are optimistic about the size of the US corn crop, which is projected to be the second largest crop on record and the US soybean crop is projected to be approximately 2.9 billion-bushels.

The unparalleled ADM global network continues to meet customers' demands and we are incrementally expanding throughput capacities across our network.

We're also looking for selective acquisitions.

We're adding barges to our south American operations and modernizing the North American barge fleet.

Slide 11 is an operating profits analysis of the other segment showing substantially improved wheat, cocoa and malt results, partially offset by decreased financial earnings.

Wheat processing results improved as margin and origination results improved on broadly comparable sales and production volumes.

In addition, earnings attributable to our equity investment in Gruma, which we report with a one-quarter lag, increased approximately $11 million.

Cocoa results increased due principally to increased sales volumes and margins for chocolate and semi finished products and improved market structure, which improved our cocoa bean carrying costs.

Our malt results this quarter reflect one month's worth of operations, as we completed the sale of this business on July 31, which we disposed of for a small one-time gain.

Financial earnings decreased $51 million for the quarter.

As interest rates decline, interest income earned by our ADM investor services business was reduced.

And as we have mentioned on previous calls, our investments in managed funds have been winding down and the corresponding income was down accordingly.

Current market conditions in the cocoa group.

Presently we're enhancing our global origination and processing footprint with our [Guanana] operations and we have our ongoing Hazleton, Pennsylvania construction project, of which the warehouse at that new facility is now in operation.

We continue to enhance capacities and cost efficiencies in wheat, as we debottleneck plants.

Now I would like to take just a second to update everyone on our investment in Gruma.

As many of you know, we own 23% of Gruma SA, large Mexican based corn flower tortilla maker and carry this investment on our books for approximately $330 million.

Gruma has recently made several public announcements regarding significant unrealized losses it had incurred related to derivatives trading.

Based on results released by Gruma last week for the quarter ended September 30, we are estimating we will book a noncash operating loss of approximately $35 million in our second quarter.

We have looked closely at the carrying value of our investment in Gruma and at this stage, we do not believe it is other than temporarily impaired.

We understand Gruma continues to work on closing out the derivatives positions and agreeing settlement terms with the financial institutions involved.

And it's unclear what the total size of the loss will be or the final -- or what the final impact will be on our financial statements.

By the end of our second quarter, we expect a lot more clarity.

Slide 12 looks at the major components of our corporate line, which turn to a net gain of $318 million for the quarter, compared to last year's quarter's net expense of $150 million.

With the significant commodity price declines during the quarter, our LIFO inventory reserves decreased $453 million for the quarter.

Last year's first quarter's LIFO charge reflected the impact of increasing commodity prices.

Our corporate interest, which is in the investment expense/income row on the chart, decreased $65 million on a year-over-year basis due primarily to interest expense related to the long-term debt that we have issued over the past year.

This line item was also impacted by the reduction in intercompany interest income that corporate charges to the operating divisions, due principally to lower short-term interest rates.

Turning to Slide 13, which shows our condensed balance sheet as of September 30 and the comparison with June 30 balances.

As you would expect, the most significant changes on our balance sheet continue to be driven by the fluctuations in our working capital requirements.

Principally due to the precipitous drop in commodity prices during the quarter, we've seen our operating working capital decrease about $4.2 billion and we've seen a corresponding decrease in our short-term debt levels and an increase on our cash and short-term investments.

And our balance sheet also reflects the disposal of our malt business.

Turning to our cash flow statement, Slide 14 lays out the cash flow highlights for the quarter.

Within operating activities, cash generated from operations before the impact of changes in working capital were up approximately 80% to $1.2 billion due principally to our strong earnings for the quarter.

In addition, we generated another $3.5 billion of cash flow from changes in working capital requirements for the quarter, primarily due to reduced inventory and receivables levels resulting from the significant decline in commodity prices.

Our investing activities reflect the continued spending on our capital construction program and our estimate of full year CapEx spending remains in the $2 to $2.5 billion range.

The increase in the other portion of this grouping principally reflects the proceeds from the sale of our malt business at the end of July.

The net result of these operating and investing activities was a large drop in our short-term borrowing balances and an increase in our cash and cash equivalents.

Additionally this past quarter, we bought back 4.3 million shares for about $100 million.

And we still have approximately 71 million shares left in our previously authorized buyback program.

As to stock buybacks, we have had discussions with the credit rating agencies and are still in dialogue with them as to how much, if any, buyback capacity we would have within our existing A, A-2 credit rating.

We'll turn to the next slide to demonstrate why we are so sensitive to our credit rating.

Since I just spoke to our balance sheet strength, our positive cash flows, the volatility we have seen in the commodity markets and our recent meeting with the rating agencies, I thought it would be useful to illustrate why maintaining our A credit rating is so important to us.

As an A-rated company, ADM has access to the deep and cost efficient Tier one commercial paper market.

As the smaller chart on this slide shows, even excluding the asset-backed commercial paper market, the outstanding balances available in the Tier one commercial paper market dwarfs those of the Tier two commercial paper market, thus providing ADM nearly unfederred access to liquidity, even in times of extreme market turbulence.

Even though there were minor disruptions to the Tier one CP market during the recent financial turmoil, this market is almost back to normal.

From a financing cost perspective, which you can see in the line chart, Tier one commercial paper has always provided very cost effective short-term funding.

Today more than ever.

Moreover, the Tier one rating enables ADM to run a large size commercial program, even in times of extreme credit market stress.

Our current commercial paper program sized at $4.2 billion, provides us with adequate short-term funding flexibility.

Our strong capital structure and the related credit rating provides us very cost efficient access to short-term funding through these -- through the commercial paper markets in normal times.

And in more volatile times allows us to capture profitable market opportunities as they present themselves.

Our capital structure and credit rating give us a true competitive advantage.

And on Slide 16, we're presenting a chart showing ADM's long-term debt profile and the fact that it's very well balanced, with less than $800 million in maturities in the next five years.

Beyond the five years on this chart, we're only reflecting the calendar years that have maturities exceeding $15 million.

Turning to Slide 17, we're providing an update of our current performance against our long-term performance objectives.

As we mentioned on last quarter's conference call, we have been evaluating RONA and other measures in light of the volatility we have been seeing in the energy and commodity markets and to ensure we continue to use the most appropriate metrics for the nature of our business.

Our analysis is ongoing and I'll speak to this in just a minute, but we continue to believe that fundamentally, RONA and ROE represent meaningful performance measures over the long-term.

But as we have seen, they can be skewed quite dramatically by changes in LIFO inventory valuation reserves, when commodity prices swing significantly from quarter to quarter.

So we have chosen to modify the RONA metric on this chart to exclude the after-tax impact of LIFO.

In addition, our asset base contains a variety of classes of assets, each with different return dynamics.

We have fully depreciated assets, generating higher levels of return, new capital, including construction and acquisition with a certain set of returns, new origination and transportation assets with potentially longer return expectations, construction and progress, with no returns until we put those assets into service, and working capital assets, including short-term incremental working capital opportunities with narrower returns.

So, point in time returns will depend somewhat on where the company is in the business cycle and in the mix of opportunities.

Even with this mix, the RONA returns for our entire value chain have averaged about 13% over a long period of time, a period of time containing a variety of business and investment cycles.

We have been conducting our review with an eye towards integrating enhanced return measures into the more robust planning process we have recently initiated.

One of my goals coming into the CFO job this year was to ensure that we take a measured approach as we establish performance measures and objectives so that we have the confidence that they will remain useful over a long period of time and in a range of market scenarios, including the recent market volatility.

When we complete this process, we'll present our insights to you.

In the meantime, we will continue to report on RONA, ex-LIFO and ROE, which by the way, remain at levels significantly above our weighted average cost of capital.

Now we'll turn the call back over to Pat and we'll open up the call to questions.

Thank you, Steve.

Operator, if you'll please open the line up for questions.

Thank you.

(OPERATOR INSTRUCTIONS) And your first question comes from the line of Diane Geissler from Merrill Lynch.

Please go ahead.

Good morning.

Good morning, Diane.

Congratulations on your quarter.

Thank you.

Just on your -- in your press release, and you touched on this on your coverage on the oil seed results, you said you had improved global crush margins primarily related to favorable raw material positioning.

Was that physical positioning?

In other words, you had enough to run your plants at higher utilization rates or was that a financial positioning?

Could you just elaborate on that?

Well, I'll start and John can add on.

But I think to the most -- for the most part, it was physical positioning.

We would like to emphasize that our financial wherewithal and strength allowed us to own inventory, both physical inventory at good price levels.

Diane, earlier in the year and even later on in the year, when you're looking at the supply and demand balance sheet globally, we saw that potentially we had a real possibility for very tight bean supplies.

So as Steve said, with our financial wherewithal, we're able to buy more soybeans on a hedge position and carry it and when the harvest became late, we had some rainy weather; we're really one of the few companies available with the raw materials supplies, which really helped our oil seed crushing assets globally there.

Okay.

So it's also about having the product available for sale as well in addition to higher utilization rates?

I wouldn't necessarily say it's higher utilization rates, as well as it's just having the raw materials supply available.

Okay.

Because we also had soybean plants shut down during that time period.

Okay, perfect thank you.

And then on the corn where you mentioned in corn processing you had a mark-to-market loss that negatively impacted the quarter.

Could you quantify that and then I guess to what extent would that, would that be realized at some point?

I'm assuming that's a noncash at this , but would that be realized on a cash basis later, or could you just talk a little bit about that,

Sure, Diane.

As we said, we did have a mark-to-market loss, which by definition is a noncash at the time loss.

And the fact that we had corn futures and options that we mark-to-market that were in place to economically hedge sales volumes that we had on our books.

We just ran into a -- to get into the nitty-gritty of the accounting rules, some hedge ineffectiveness, which is an issue.

But to answer your first question, we're not going to give you the quantity.

But, as you'll also recall, we can't mark-to-market our sales side of that, so that's why we get -- it ends up being a timing issue.

So presumably this would -- this would unwind as you make the sales later, in later quarters because there were hedges that were put in place to off to set up a true classic hedge on revenue later in the year, is that how I should look at that?

That's how you should look at that.

The accounting rules sometimes don't help us in that, in matching up those costs with those sales.

Okay, and then just staying on corn processing, in the fructose, you said you were 50% -- you were 50% done on your contracted volumes.

Is there -- but you expected prices to be up to maintain your margins.

Is there a -- should we be thinking mid single-digit, high single-digit, low double-digit, is there a range for us to think at this ?

Diane, we do not want to give a range yet.

We'll wait until our February call when we normally do, and then we will -- we'll pass on that information at that time.

It's still too early to say.

Okay.

All right.

Great.

Thank you very much.

Thanks, Diane.

Your next question comes from the line of David Driscoll, Citi investment Research.

Please proceed, sir.

Thank you, good morning, everyone.

Hi, David.

First off, congratulations, these results are quite fantastic.

I want to kind of come back to oil seeds again.

Can you just explain for us the longevity of this type of benefits that you have seen.

John, is it something that we should think about here that it was related to benefits that kind of accrued to ADM prior to the US harvest, the harvest that we're currently in right now?

So when you're in those months right prior to that, there's very, very tight bean conditions that we saw and it was that particular period of time that generated these excess, or kind of substantially above average profits for that particular division.

Is that characterization accurate?

Yes, David.

I would say you've quantified that very well.

It has to do with just the timing on the purchases, the timing of the crops, and then also just because the crush was lower, demand, we had still had export demand on soybean meal.

so we're just able to realize few of the, few of the benefits that happened just because of that.

Okay.

So then big picture, the way that the year unfolds, because now that we are in the harvest, the conditions within that business are completely different than they were in fiscal 1Q.

Fiscal 2Q and beyond, we should expect -- because I think in your prepared remarks, I forget who said this, but I think you guys are making the statement that oil seed crushing volumes are expected by the USDA to be down year on year, thus the expectation would perhaps be that we would see weaker margins year on year from Q2 through Q4.

Is that again directionally accurate?

Well we keep talking about last year was such a very good year in terms of world demand for protein meals.

7%, 8%.

This year we're just seeing a slighter increase in the demand, maybe only about 2% to 3% increase.

The crush rates are running slower now with the farmers not selling their soybeans.

So by just taking the absolute numbers, like you said, the poultry chick placements are down over last year, we're seeing less feeding, maybe a little less exports.

Looking at that, you could say crush margins could be a little bit less than last year.

Yes, I would agree to that, or less corn.

Okay.

And then just going back to the corn processing segment, I'm not -- I want to make sure that I did understand Diane's question here, it's an important question.

Can you just tell us what the actual size of the dollar loss was on the mark-to-market corn futures and options positions?

No, we're not going to do that, David.

It, it's embedded in the numbers that you see there.

It's part of -- it's not -- we also saw higher commodity prices, so it's not all of it.

But it's just something that we don't necessarily want to disclose.

And I suppose maybe then could you just rank for us -- so this business according to your, your press release, $118 million versus $250 million in profits year on year, down $135 million.

Is the number one reason for the decline the mark-to-market losses, or is that number three, four or five on the list?

It's, it's -- the number one reason is higher corn costs, of which this is a component thereof.

We have some of this every quarter.

It's just -- we want to call it out because it was a little bigger impact and because as you pointed out, the numbers have dropped quite significantly for the corn processing division.

Okay.

One final question, Pat.

Just wanted to talk a little bit about mergers and acquisition opportunities right now.

Certainly we've just seen the [Verison] bankruptcy filing and the ethanol industry, again, as your prepared remarks highlight.

But we see it everywhere.

Ethanol margins are under substantial pressure.

I continue to believe that ADM's long-term view, given the fact that you have such substantial capital spendings go within that business for the two plants under construction, that you guys have definitively positive view on it.

It makes sense to me then that you would want to be an acquirer of assets that are out there.

Without commenting specifically on any particular company, would you be interested in taking advantage of distressed assets in corn-based ethanol in the United States?

Because it's different than your current strategy of having these mega plants that have much larger production of ethanol and in fact you have many other things at those sites, coal co-generation, et cetera.

So what I'm really trying to get at, do you stick to the current strategy that you have or does distressed asset prices intrigue you enough where you would be interested in adding some assets at the right price?

Well, let me first say I don't think it's an either/or.

We do have our strong construction under way that is more than halfway complete at our two expansion plants, our biodiesel plants have been complete.

We just talked about the one in Brazil.

You speak about ethanol, or your question is mostly about ethanol in the US and I think we're always actively engaged in the market.

We have said before we know the plant locations, what would make sense or of interest to us, distressed assets are more interesting than those that are not distressed and we'll keep watching it.

But I don't think it's either -- if you phrased your question either finish your plants that under construction or distressed assets, that you have to look at it as one or the other, I think we'll consider everything.

And I certainly did not mean to imply that you would perhaps not finish your plants.

Of course I believe that you will finish those plants.

The question is really whether or not you would want to add single, individual 100 million-gallon size dry mill plants that don't have the scale efficiencies that ADM is fairly famous for.

We're always looking at things and sometimes it's not -- it's where they are located relative to our system and sometimes smaller facilities, perhaps are -- it's not been our expertise to think about adding small facilities.

We're actually building some small pilot plants for some of our advanced generation biofuels.

So sometimes you think of those types of things, too.

So we'll continue to look at it.

How about just a general broad question, are you seeing a large kind of pipeline of potential acquisitions?

Is that something we should be thinking?

I'll take that one, David.

This is Steve.

The answer is we are looking -- we are both looking and being approached on a regular basis.

And acquisitions are always in the mix of our growth strategy and I think it's no secret at this point in the market cycle there very well may be some good opportunities.

So the answer is -- I wouldn't call it a pipeline, but we have some -- we have areas of interest that fit into our growth strategy.

I would also maybe mention it's not like a pipeline, but it's a funnel and we would argue that this funnel is fuller than before because people are coming to us and also there's distressed assets.

But they have to come through that narrow funnel portion to come out the other end and be something that would make sense for us and I think you kind of know our history, we are patient, we look for the right opportunities and I think we'll still do that.

I know the history well, which is the reason for the question.

It seems like this is exactly the opportunity ADM's been looking for for years.

Thank you for all the answers.

Thanks for the questions.

And your next question comes from the line of Todd Duvick of Banc of America Securities.

Please proceed.

Yes, good morning.

Good morning, Todd.

Appreciate your comments on the balance sheet and the credit rating and obviously you're in a very strong position currently.

And I guess kind of a follow-on to David's questions with respect to acquisitions, can you just kind of tie that in with your earlier comments about the credit rating and if there would be something that you could envision being so attractive that you would forego your credit rating where it is today?

Todd, it's a great question.

The typical answer around here at ADM is it depends.

It depends, because the -- as we laid out, we think clearly today, the credit -- our credit rating and our access to commercial paper is very important.

But it's just one piece of our business and one piece of our business model and could you picture an opportunity that might do just what you said?

And the answer is yes, you could.

You would have to -- you just have to weigh all the pluses and minuses of it.

But I would expect us to do all we can to keep our access to the credit rating and Tier one commercial paper access.

Could you dream up a scenario that fit that?

Sure, you could, but we'll see where that takes us.

Okay.

I understand it's difficult playing hypotheticals.

It is.

Thank you for your response.

Thank you, Todd.

Thank you.

And your next question comes from the line of Terry Bivens of JPMorgan.

Please proceed.

Hi, good morning, Jason English here standing in for Terry Bivens.

Couple of quick questions.

I'm intrigued by your fertilizer volume gains on the quarter, given volume weakness reported by other suppliers in South America.

Is it fair to assume that you're capturing share gains and your sales are credit backed by ag commodity supply commitments?

I'll start and then maybe I'll throw it over to John Rice here.

We're a relatively small fertilizer player.

I'm not sure who you are comparing us to, but relatively small.

But we had a good quarter and it's part of our origination process and origination network as far as how we try to utilize those fertilizer sales.

John, do you want--

This is comparing year-over-year and every year we keep growing a little bit more of our business down there with the financing of farmers with fertilizers.

So compared to last year we've had a lot higher fertilizer prices, so that was part of the increase in the profitability.

Okay.

So maybe a little preliminary to assume that you'll likely capture volume share gains of South American commodities upon harvest?

Correct.

Okay.

One question on ethanol, US ethanol prices appear to have decoupled from gasoline recently We've read some reports that suggest that this may be the result of ethanol pricing evolution to a cost-plus model.

Two questions related to this, one, do you think the decoupling is sustainable, and is the pricing model in fact evolving?

Long-term, I feel that once over capacity is no longer a large factor in this market, we will start selling ethanol versus the, what it's replacing, unleaded gasoline.

That's how we sell all our other products.

What other product is is replacing?

Whether it's soy protein, whether it's corn sweetener.

So eventually we'll get to that point.

Right now it's more on a cost-plus, as you said, just because of the over capacity in the industry and people look to buy corn today and sell their ethanol today and lock in a little bit of a cash flow margin.

So, I don't know if we're out of that time period yet, but when the over capacity leaves, I feel going forward that ethanol will be price versus unleaded gasoline, which is what it replaces.

Very good, thanks.

I'll pass it on.

Jason, Jason?

Yes.

While I've got you here, I just wanted to call out that we did put in the appendix, per Terry's request--

I saw that there.

Thank you much.

And to all others on the call, the fact that we put our historical process volumes in the chart.

Just wanted to make sure that you saw that and that everyone else that might utilize that information has seen it, too.

Very helpful and much appreciated.

Thank you.

And your next question comes from the line of Chris [Bledsoe] of Barclays.

Please proceed.

Good morning.

Good morning, Chris.

Just a question, it seems to me like the market right now is kind of grappling with getting a feel for ADM's ongoing earnings power.

And, and I don't know, it seems maybe the market's implying an expectation that is more cyclical, whereas when I listen to you speak, I get the sense that, that there's more structural change that you believe is not really kind of being accounted for in current valuation.

So, [Bungy] provided what they felt was kind of a normal type of base for their earnings and I was wondering if you would be able to do the same or kind of directionally?

It seems like the market's implying a reversal to kind of 2004, 2005 earnings levels.

Seems a little bit severe, but I wanted to get your perspective on kind of a normalized earnings base.

Well, Chris, I'll start and maybe Steve as he has talked about some of the metrics we have work under way going forward might help to add to this.

I'm frustrated by our valuation, like every shareholder.

I don't think it reflects the long-term fundamental strengths of this company and its ongoing ability to continue to add value.

And that doesn't mean I'm helping answer your question about what a normalized quarter or year might be because it's, it's not appropriate for us to provide guidance or even, quote normal, because we see ourselves at different levels and different -- in different years.

And while your analysis and others may say that we're at somewhat higher or plateaued levels relative to the past 30 years, we've had our highs and lows and whether that's sustained higher level or one that has more longevity in its, in its peak then we've seen before remains to be seen.

But I think it's the fundamental underlying capacity of the global network, the globalty of our business and our network of assets which we have continued to add to the base.

One of the most important things about our business as we continue to add to the base and have these kinds of returns that are well above our cost of capital over a period of time, those are the things that we hope are ultimately reflected in our valuation.

Chris, just another comment, as we look at the business here, we set long-term strategy, we set short-term strategy, and then we deal with the market conditions that we're handed in a particular period of time.

And that's what makes defining that term "normal" very challenging.

We've -- history, which right now is what all you can rely on, has proven that our model has been successful at returning shareholder value and that we continue to build on that model, build on that system.

It's something that we -- your basic question about what's normal or what's average or where is the range is something we ask ourselves from time to time.

But even given period, as you can appreciate, especially in this last six to nine months to a year, can be very unpredictable and very volatile and we've shown that we navigate our way through that to bigger and better places on a regular basis.

Yes, I understand.

It seems to me we've had kind of a series of exceptional quarters and it's just --

I think--

-- market seems a little frenetic here and I can understand why.

It's tough to gauge what is kind of the underlying value of that ongoing earnings stream.

Right.

We hear you.

We think there's a lot of value in that underlying earnings and cash flow stream and I thought Steve's point there with long-term, short-term, and then we manage as the current conditions provide.

Yes, understood, understood.

I guess another way to look at it, or just what I'm attempting to gauge it here from the outside, if I look at the volumes that you've provided in the slides, it looks like we're maybe about at levels 10% higher than 2003.

But if I think about where your earnings are at it's probably more than four-fold 2003 earnings levels.

So it seems there's a big kind of gap between the volumes that you're processing and then the earnings that you're deriving from those volumes.

And it's probably a lot at play there, but I'm wondering if you can give me a sense for how much of that -- how much utilization levels have improved since 2003 -- capacity utilization levels, and if it's your sense that that may be how much of the sort of incremental $2 versus 2003 in earnings that that contributed?

Well, there is a couple of things.

Those are processed volumes, Chris, as you know, and they don't include the other types of base assets we've added to the business, the ag services assets, the infrastructure, transportation assets, storage assets, intellectual assets, which I would probably put at the top of the list that continue to get better.

And as you add to that base it's that base that grows as well for the additional earnings potential, not only the processed volumes base.

And, Chris, looking back, back then you had a lot more excess capacity also in the market.

What we've seen is increased demand in soy protein and other proteins around the world and we've also seen more global demand for biofuel.

So maybe the capacity -- I don't have it off the top of my head, back then was at 80 to 85%.

Now the industry is running closer to 90, 95%.

That has a lot to do with the returns over time.

And as we keep seeing the demand going forward, we keep adding to our asset base.

We keep increasing, because we keep seeing this trend going forward.

So going back to 2003, I think just gets a little tough to relate just to the pure volume.

You also have to look at the utilization rate in the industry at that time.

Yes, okay.

Just a couple of quick other ones.

On global trade, on the protein side, it sounds like we've heard some concerns about sort of key trade routes, whether to Europe or Russia, experiencing credit-related disruption.

I was wondering if you're seeing the same thing in terms of sort of grain commodities and oil seed commodities.

I'm sorry.

What type of disruption?

Credit-related disruption, so willingness to accept certain lines of credit from extended by foreign buyers.

I mean we, we're very diligent on our credit lines.

Most of the grain business is done on an LC business.

So we have not seen any real disruptions in that market as of yet.

Okay, great.

And the last question is just on the election today.

Any big kind of difference for you in terms of whether we see kind of the super majority in congress on the democrat side or -- I mean I think you've been pretty clear about sort of where the Obama camp and where the McCain camp has come out on things, but more from the congressional perspective and super majority versus not, any, any kind of thoughts there?

Yes, Chris, we need to be and are prepared for sort of any administration, as well as any set of congressional representatives by just being clear about what, what our issues are, what's helpful to have a strong economy, a particularly strong rural economy, some of the issues related to our plants, our production.

So it's not of our interest to kind of nail down whether it's a super majority or something less.

We are prepared to work with staff and representatives as there will be a transition here obviously in the turnover to make sure our positions are clear.

Okay.

Well, thank you for taking the question.

Okay.

Thanks, Chris.

Thanks, Chris.

And your next question comes from the line of Vincent Andrews of Morgan Stanley.

Please proceed.

Good morning, everyone.

Good morning, Vincent.

Just a couple of quick once.

First, could you just remind us, I think foreign exchange has been a head wind for you guys over the last year or so, particularly in your European operations from an SG&A perspective.

Can you help us understand how, within that and then outside of that, how the weaker dollar might benefit or not benefit you?

Yes, Steve?

Well, Vincent, it's a real mixed bag because the -- from an absolute financial statement perspective, the weaker dollar has inflated our balance sheet line items to a point, so for example, SG&A and others.

You get into the more economic side of things and what does a weaker dollar, stronger dollar do to your business.

We do have a few businesses that are Euro-based, cocoa business has a little more global flavor to it, not quite as heavily dollar-dominated as the Euro, or as cocoa.

So it's a mix.

We'll see an -- it will influence the financial statements.

I really wouldn't call it a head wind per se because there are some benefits.

It's just hard -- it's really hard to quantify because often times our commodities are needed no matter where the exchanges rates are.

I don't know, John, do you want to add onto to that?

I can.

When it comes to SG&A costs how we look at them is if your in Europe, we look at not increasing the Euro-base denomination, not versus the dollar.

So every part of the world is different on how they look at the SG&A costs, but it's really in the local currency what they look at it, make sure they are not increasing over X percent.

Okay, and then one other one, it would just be -- and this was touched on a little bit earlier, have you changed the amount or level of credits you're extending to farmers in South America in the past six weeks?

No, we have not.

You have not.

So you're operating business as usual down there?

Correct.

Okay, and then lastly, I think Steve mentioned in his prepared remarks that the dynamic of the ethanol price relative to the wholesale gas price has now inverted relative to where it's been for about a year now.

And you mentioned that that might have some delay in terms of incremental new ethanol market expansion.

I presume you're speaking strictly about incremental discretionary blending as opposed to existing discretionary blending.

Can you discuss the dynamics at which you think that new market expansion might be delayed?

I mean is there a key price level or key gap between ethanol and [RBOB] that you think we need to be either in front of or behind in order to continue to encourage infrastructure addition?

Well, you always have to compare the cash markets, unleaded markets or what the ethanol market is.

And depending on the part of the United States, ethanol is worth about $0.20 to $0.30 over unleaded gasoline.

The blender gets a $0.50credit for blending, so it's still below unleaded gasoline when you subtract that $0.50 away.

So the rule of thumb usually is until we get up to that $0.50 over unleaded gasoline, we will keep seeing the discretionary blending.

So under that scenario, we would still have another $0.20 to go.

Sure, but there was a comment made that you'll still see it, but you might -- the pace of expansion might slow.

So is it fair to assume that as we get closer to being at parody including the $0.50 tax credit, you would the pace of expansion to slow, just --

Sure, I mean just because when everybody is making an extra dollar a gallon, when it was so cheap, everybody was trying to get their infrastructure in very quickly.

Now with gasoline demand down, people are going to be slowing their blending capabilities and expansions also.

Okay.

I'll leave it there.

Thanks very much.

Thanks, Vincent.

And your next question comes from the line of John Roberts of Buckingham Research.

Please proceed.

Good morning.

Good morning, John.

You don't have any of your projects going beyond the first quarter of next year.

Do you have an estimate at this point how much capital spending is going to drop after the first quarter next year?

John, maybe you want to look at the appendix.

Let me pull the slide up.

All right.

We're in fiscal '09 and I mean--

Right, and these major projects go off into the early parts of '10 and the answer is that we don't have it -- yes, we don't have an estimate yet for what '10 looks like.

Unless you start some major new projects very soon, it's unavoidable there will be a big drop.

Well, there will be a drop based on where we stand today.

And of course when you get into the first quarter of calendar '10 is the third quarter of our fiscal year, so we'll -- our fiscal '10 will still show--

'11 actually.

Fiscal '11.

I'm getting my dates wrong.

Yes, you're all the way into fiscal '11.

Okay.

But the bottom line is, you're right, John, that that -- right now based on significant capital construction, those numbers would fall off, start to fall off significantly.

Right, because of the lead time you would have--

-- of course we talked earlier on the call, there's always opportunity for acquisitions and/or different kinds of projects where--

Or incremental growth, which is a much shorter time line project for certain plants.

Right, and the [Grupo] Cabrera announcement, that sounded similar to at least the rumors we had back in July.

Does that preclude activity with other ethanol producers, or sugar cane processors in Brazil?

It does not.

Okay.

So you don't have any restrictions put on you in terms of other activities you might pursue in Brazil?

Only the ones we put on ourselves.

Okay.

Thank you.

Thank you, John.

And your next question comes from the line of Robert Moskow of Credit Suisse.

Please proceed.

Robert, are you there?

Sir, your line is now open.

You may ask your question.

Yes.

Hi, Rob.

Hi.

I guess you can hear me.

I had a question about the working -- I'm sorry, the net asset base.

Is the math that I'm doing correct here, that it's about $19 billion?

I think that's the average.

Would you pull that slide up?

I think that's right, Rob.

Okay.

well, Steve, if you did 13% on that, wouldn't that get you like $3.80 of earnings per share?

Yes, I think that's the arithmetic.

Okay.

All right, well, the market's not giving you credit for it, but maybe they should.

That's my only point.

Thank you.

Thanks, Rob.

And your next question comes from the line of Ken Zaslow of BMO capital.

Please proceed.

Good morning, everyone.

Good morning.

One general question.

Talking about the normalized earnings and all of that essentially sounds like -- unless looking back in mystery the only way you should use that is if you decide to divest all of the capital that you've spend.

Over capacity comes in line and the world completely changes back to '03 levels.

Is that -- I mean I guess that's kind of my thinking, is you can't really use history to look at your core earnings given your asset, given that the world is changing is that fair?

Is that what you're trying to say?

I'm not sure --

I think the answer is yes.

Say what you said again, Ken, first.

It seems like a lot of people are trying to look back at '03, '02, '01, going back, but your capital base has changed dramatically.

It has.

The world has changes in terms of biodiesel -- going back five years ago, that wasn't really even part of the equation.

So, is history actually a good measure of what is going to happen in the future?

Well, let me start on that and I think maybe we'll have some build.

I think you're right that looking backwards gives you some information, but it's not a perfect predictor of the future, nor would any set of history be a perfect projector of the future.

I think understanding, though, the conditions that were in place during either the peaks or the valleys and what happened during those, whether it's over building, whether it was sustained area.

We had a very conservative time where we didn't spend any cash and we needed to get through some fine expenditures.

There is some difference in the troughs and the peaks during those times and we certainly do have a different asset base and a different world demand and consumption than we had during the past.

And that's why I think Steve and some of his work on the appropriate metrics and the appropriate looks for our asset base going forward has that in mind.

And when you do add the asset base, you do expect to earn a return above or in line with your [arnella] is that fair?

That's fair.

Okay.

Then just going to the actual specifics on the quarter, when will lower corn prices actually hit your income statement?

Obviously they have come down.

Does it take two quarters, does it take a quarter, when will we start seeing -- again, absent your hedges or whatever's going on there because I know you don't want to tell us, which is fine.

But what about just the direction of corn going lower, when does that actually hit your income statement?

Lower corn prices are always -- are more beneficial to our corn processing.

It will be a little bit.

A lot can be on the timing versus when the sale was made.

An example I like to use, let's say we sold sorbitol at $0.25 for February.

So if we go buy the corn back in October, or I should say in September, the mark-to-market losses, we still have our sale at $0.25 sorbitol, but with corn values coming down, that will not be -- we already have our margin locked in, but we'll actually defer that margin going forward.

We'll just have a wider margin just by bringing the corn to a market value.

All of our hedges don't work that way, it's just some of them.

Maybe come in this hedge in effectiveness.

So it's not one quarter.

It can also go from quarter to quarter on how it also comes into the P&L.

Okay.

Maybe I'll ask the question a different way.

Let me jump in.

I think we're not going to tell you what our position is.

And I understand that.

And you know that.

Right.

But we have historically said we're not out over a year.

We've always said that, and we don't have -- we are generally hedged, but not always hedged.

We sometimes do some anticipatory buying, so this is going to come in.

We will see some drops during this fiscal year, and it's just going to -- as I think we might have said earlier, it takes a little time to get through the system here.

So it would be a quarter or two out?

I mean it's this fiscal year, which is in the next three quarters, but maybe not next quarter.

So it's between one and three quarters, is that fair?

I would say if you go between one and three quarters, we should see some impact of the lower corn costs.

Okay.

Now in terms of ethanol balance.

How do you see this playing out?

You said that there were a couple of facilities that are either going bankrupt or that some are actually closing down, yet the markets aren't opening up as fast, maybe as you think.

So, by what period of time do you think we are going to be in a balance between demand and supply that the margins will be restored?

I guess to put an exact timing on it, I feel over the next two years, probably.

Just with the drop in demand of unleaded demand also has a play into this where we're projecting maybe a one to two increase in demand of unleaded gas.

So a demand coming down, plants coming come on; it's kind of skewed a little bit.

But I still believe probably some time over the next two years, we should come to our supply and demand balance.

Because nobody is building new plants now.

Okay and then my last question is, in your -- the crush margin outlook, I know you gave the US and how does that differ from the US and how does the outlook look for Europe between [rape] seed and sunflower and soy bean?

Well, we are seeing very good demand in the [rape] seed and the protein meals over there and also biodiesel.

Not with prices coming down a little bit, but we've also seen [rape] seed prices come down.

During the winter months, they tend to use more [rape] seed oil in biodiesel in Europe and less palm and soy, just because of the cold flow issues.

South America margins have come down a little bit just because of the tightness of the crop, we're getting ready for a new crop but when that harvest comes we should see margins come back there a little bit.

But still overall with the global economy going down, we'll have somewhat of an effect.

Great.

I appreciate it.

Thanks, Ken.

And your next question comes from the line of Christina McGlone of Deutsche Bank.

Please proceed.

Thank you for taking my question.

Congratulations on a great quarter.

Thank you, Christina

I guess I wanted to understand ag services better because I know we had a situation where we didn't have a lot of crops in the US, we had a lot of crops outside the US, yet your footprint is kind of geared for the opposite scenario but you still did phenomenally well.

So I want to understand better how that happened.

We have a lot of assets in the US but we also have a lot of assets outside the US.

We just tend to have more on the grain side in the United States.

So when the supply, when the wheat supply ships from North America supply to whether it's coming from Europe, Eastern Europe, we're still partaking in those Markets.

So it was just I think our ability to be able to see where the new supply was going to come from.

And John, is that supply shift to Australia, can you still benefit there or is that a different scenario?

No, sure.

We originate wheat out of Australia.

Okay, and then when you talked about freight management, do you trade freight, what does that mean, freight management?

We have freight positions because we're moving products all around the world at different times, whether it's soy beans, whether it's our protein or whether it's oil.

So at times we maybe have freight booked out forward and at other times we may make a sale and book freight on a later date.

Okay, got it, and then just last question, quickly.

It sounded like you talked about soy bean oil supplies not being burdensome.

And I wanted to get a better idea of what's going on in biodiesel because we have the new mandate coming in the first time we have the carve out.

But it seems like we aren't going to be able to export as much to Europe.

And I'm curious what is the net effect of that?

Is it an increase in demand for soy bean oil in the US or is it kind of status quo?

Well, with the mandate, we should be able to see an increase in demand in the United States.

But that will be a concern if that oil cannot go to Europe.

That is correct.

But a lot of the Argentine oil was going over to Europe and coming into the United States so I think that should help maybe the US biodiesel industry a little bit.

Because Germany just implemented a rule where they aren't using soy.

Is that correct?

I know they are talking about it.

I don't know if it's actually taken effect yet.

I don't think that it actually has.

Germany seems to be talking about some sustainability requirements for the biodiesel which might include a limit on what soy, what amount of soy goes in.

Okay.

And sorry, last one.

Next year, we go to $0.45 on the tax incentives, in ethanol?

Is that right?

I think that's right.

On the farm Bill, okay.

Thank you.

Thank you, Christina.

And your next question comes from the line of Ian Horowitz of Soleil Securities.

Please proceed

Hi, good morning everyone.

Hello, Ian.

Just a little bit off Christina's question, that $0.45 credit, there's a volume threshold that you have to exceed; correct?

That the industry has to exceed to get to that lower credit rating or is that effective January one?

No, that's just a blenders credit, if we're talking the same thing.It's the blenders credit.

Right, but I thought that lower credit got triggered on a total industry capacity as well.

No.

Okay.

I think in the prepared remarks, you talked a little bit about the wheat substituting for the soy bean meal demand into the livestock market.

Do you guys see this as a more longer lasting situation or is it kind of a snap back reaction from the better harvest we're seeing or we're predicting to see out of the Ukraine and Australia?

It's just a evolution I guess is the best way to call it.

From one year to the next on whatever crop.

Last year we saw great corn demand and soy bean demand because we had huge wheat crops.

Now we've got a good wheat crop started.

It depends what everybody grows.

But long term I don't think everybody, if wheat prices come down enough, people will quit planting wheat and plant soy beans instead.

So I don't think it's really more of a long term.I think it's just an evolution from year to year on how the feeding companies look at what they want to put in their formulas.

Great.

So when we talk about a meal growth of 2% to 3%, that's not, you don't see that as a sustained 2% to 3% growth rate?

No.

We still believe over the long term we'll be at 4% to 5%.

Okay.

And then when we were out in Cedar Rapids there was a discussion on credit concern for customers counterparties, kind of specifically in the protein segment.

Have you seen any alleviation of those concerns recently or is there still difficulty in dealing with the counterparties from the credit standpoint?

I think, this is Steve, Ian.

I would say we are still in the midst of credit concerns, as John mentioned earlier, we're very diligent about how we handle our credit counterparties, but there is no question, there are some of our unfortunately, some of our customers are having some challenges here.

So they're still out there, and we as I mentioned, we did add a bit to our provision for bad debt reserves in consideration of that.

Okay, and is there an update, do you guys have an update on, I'm going to miss pronounce this the [Destrehan], Louisiana explosion?

Yes.

It will be probably two to three months before we are back operational at [Desterhan].

But we had an elevator at St.

Elmos, Louisiana that was not operational and here in the last week we got it operational, matter of fact we're loading a ship today down there.

So we don't think it will have any effect on us.

It really is more of a logistics, it hurts our logistics a little bit, but I think within three months we'll be back operating in [Desterhan].

Do you have an expected cost for repairs yet?

No.Still working on that.

Okay, and one last quick question.

With this announcement of the Brazil sugar ethanol JV, is the Brazil [FOB] into the US, is that open to this point or currently are we still under water on that trait?

The Brazilian ethanol does still not work in the United States.

I think there's about a $0.07 difference on an FOB to FOB basis and by the time you take freight it will not work.

Ian, also, as you'll see in our announcement, these two plants which is this Brazilian investment will be producing ethanol for Brazilian consumption.

We feel it's very strong in the areas where these plants will be.

Okay.

Excellent.

Thanks a lot guys.

Again, (OPERATOR INSTRUCTIONS).

Your next question comes from the line of Michael Piken of Cleveland Research.

Please proceed.

Good morning I'm calling on behalf of Christine McCracken.

Just wanted to touch base following up on the Brazil question.

Do you think there's any chance the US government may lower the tariff over the next couple years and if so, what would that mean for domestic producers?

Well, at some point maybe the tariff will be lowered.

Our investment in Brazil I think continues to reinforce that we feel that biofuels has a place in the agricultural portfolio in different regions of the world.

So whether it's Brazil, Japan is looking at different sources for ethanol both from the US as well as from Brazil.

So whether the tariff exists or not, our longer term strategy is to be able to provide product where the markets demand it.

Okay and then just sort of thinking globally, I mean last year you guys sort of produced a really strong year where we had a good US harvest and maybe some of the other areas particularly like the Australian wheat crop and Europe had a disappointing crop and then this year it looks like globally things look better particularly with the larger wheat harvest.

As we think about sort of your overall business, what is sort of the best environment for you?

Is it to have large crops everywhere or is it better to have sort of dislocations, how should we think about that?

We like to see very large crops and very good demand globally.

Okay.

For both food and fuel and industrial.

When you think about the long term, that's good for the world; it's good for us.

So there's no particular benefit?

Because particularly with ag services I thought a lot of the benefit last year was due to the fact that we had sort of a dislocation with short crops in some areas.

Well while you may hope for crops, abundant crops everywhere in the world and hope for continued demand, we always find that that's not the case sometimes by region.

So you'll find different weather conditions, different planting conditions, and so fourth.

So it's abundance of crops is continually good for us.

And I think, and we have situations like we did last year , we'll look at those opportunities and potentially capitalize on those.

But if you really step back and ask from a long term perspective the abundance and the demand is where we want it but it's not to say that we can't make money in other

Okay.

Fair enough.I'll leave it there.

Thank you.

Thank you, Michael.

And your next question comes from the line of David Driscoll of City Investment Research.

Please proceed.

Great.

Thanks for taking the follow-up.

When I look at the oil seed processing business, the $500 plus million of profit generation in the quarter, I mean, this is half, almost half of the 2008 profit for that whole division.

And then when you go back in other years you just don't see this quarter was unbelievable quarter in oil seed processing.

I'm curious, John, if you're the right one to answer this question, or maybe Steve, but when we think about the risk profile, I've always viewed ADM in a way where you guys are excellent risk managers and that always meant to me that you never really risked your firm.

I mean some of these ethanol companies, they've literally blown themselves up because they took a speculative position on the corn market and it didn't work.

ADM never seems to have done that but conversely, we don't seem to see fantastic highs and profitability if you ever get these things right.

Now in oil seed processing today, we're seeing one of those results that is kind of out of the realm of anything we've seen in the past.

Is the level of risk that was taken in that business in the quarter substantially above historical levels of risk and if not, can you explain a little bit as to how this type of number gets generated?

We have not changed our risk profile at all.

We still have limits that we watch in all of our positions and we will also look at this as a total companywide position.

So we won't have all positions running one way unless we feel very strong about that.

So I think when it comes to the oil seeds there was a lot of factors that came in as we mentioned earlier.

We saw very goodbye oil seed or diesel margins in South America.

We saw an opportunity to put on some biodiesel margins in Europe, by having our beans purchased right with a tight carry out came into play.

So I think a lot of it was the stars got aligned at the same time, but we did not increase our risk profile during that time period.

Let me add to that -- your question, David, that obviously, there are times when our notional risk which would be the price of commodities or the cost of commodities being from a high to a low over say any period of time, 12 months, times what we take through in our processing, that can change by a particular time frame.

But our, the way we look after risk and the way we look after the system as John has said has not changed, in fact if anything it's continued to get better and a more flat communication in these volatile types, I think it needs to be.

So we've just I think become stronger in that sense.

Steve, can you just confirm for me that ex the LIFO charge the corporate tax rate was 26% or thereabouts, I think I got like 26.1%, but below your full year guidance and I believe you said on the call 30% is the new expected full year rate and that's down about half a point from prior guidance?

Yes, we think we'll be at about 30.

I don't have my calculator here, but I think you've got to be close on the other.

Because we do when we look at that LIFO as a US kind of fully loaded US tax rate credit, but I think that's right.

But I think we do see 30 as the ongoing rate as I mentioned earlier, as we look at the benefits that we've put into place in Europe and other places to try to gain efficiencies and improve our tax structure.

And the underlying, so the underlying reason why the tax rate would be above sort of the 26% I'm getting is just simply over the course of time different mix of geographies and you net out at 30%; is that right?

Absolutely.

Final question.

John?

What's your thought process right now with credit issues and so fourth in Brazil in terms of Brazilian bean acreage?

Do you expect total bean acreage in Brazil to be up and if so, is 0%, 2%, 5%?

Any context you can give around this I think is helpful.

I think it's still early.

I think we've got right at 30% of the crop harvested right now.

The weather conditions are very good, or planted, I'm sorry, got to plant them before you harvest them.

I was going to say something very different is happening down there than what I'm used to.

But it's still too early to tell exactly how we come out but right now we're saying it will be somewhat unchanged.

Unchanged, okay.

Thank you so much for all of the answers.

Okay.

Thanks, David.

You have no further questions at this time.

At this time I'd like to turn the presentation over to Ms.

Woertz for closing remarks.

Well thank you all for your questions and your interest.

While we've had a terrific quarter we're certainly not complacent, nor are we immune from any economic pressures.

We love our space.

We like our assets, our network and we remain confident in our strategy to continue to deliver value.

Thanks for your interest.

You might see the upcoming events are both the date for our second quarter call as well as the CAGNY conference date.

Thank you.

Bye now.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Great day.