Archer-Daniels-Midland Co (ADM) 2009 Q2 法說會逐字稿

Good day, ladies and gentlemen.

And welcome to the second quarter earnings conference call.

My name is Antoine, and I will by your operator for today.

At this time all participants are in a listen-only mode.

We will conduct a question-and-answer session towards the end of this conference.

(Operator Instructions)

I would like to turn the call over to Mr.

Dwight Grimestad, Vice President Investor Relations.

Please proceed, sir.

Thank you, Antoine.

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

Before we begin I would like to remind you that we are webcasting our presentation this morning on our new website ADM.com, which you can also reach by accessing ADMworld.com.

The replay will also be available at that address.

For those following the presentation, please turn to slide two, the Company's Safe Harbor statement, which says that some of our statements constitute forward-looking statements that reflect management's current views and estimates to future economic circumstances, industry conditions, Company performance, and financial results.

The statements are based on many assumptions and factors including availability in 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 at our conference call today.

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

Thank you, Dwight.

And good morning, everyone.

I will begin with safety first.

During the second quarter, we reduced loss work day frequency by 10% and total recordable incidents by 18% compared to our fiscal 2008.

To continue our improvements, we are implementing a values-based safety program at our ADM facilities around the world.

Our financial results, this morning we reported quarterly net earnings of $585 million, up 24% from second quarter earnings of $473 million from a year ago.

A great job by the ADM team for this fine result.

Their incite into market dynamics, good risk management, good cost management, all very good performance in particularly challenging markets.

While our segment operating profit was down for the quarter, earnings per share increased to $.91 per share after taking into account the impact of LIFO.

Our AG Services and Oilseed Processing business continued to perform exceptionally well.

We came into the quarter well positioned ahead of a weakening margin environment in these markets.

Our Corn Processing segment declined.

We saw losses in our ethanol business as we experienced declining market prices, declining demand, and we wrote down our ethanol inventories.

The ethanol business is still challenging.

While we did foresee the over building of some supply a while ago, we did not foresee the depth of this current economic crisis or the decline in gasoline demand.

Incremental blending, which in the past above the mandate which had been increasing nicely had substantially stopped.

We do have good reason to believe in the longer term opportunities for ethanol as we work our way through this oversupply situation.

And we will talk more about that on the call.

On the strategic front this quarter, integration efforts at our very important packaged oil joint venture with Associated British Foods.

We announced that this last quarter.

Those integration efforts are going well.

We recently announced the acquisition of the Schokinag Chocolate and Cocoa Powder business in Europe, and we've innervated our new rape seed crush plant in southeast Germany into our European Oilseeds business.

So that is complete.

Now like every company in the world today, we do see evidence of the impact and ramifications of this economic downturn and we are dealing with it.

We've discussed this environment with you in the past couple of calls.

We do see challenges ahead.

We are confidently adjusting our business model.

Accordingly we are slowing production in markets where demand has slowed.

We are looking carefully at our cost structure and critically at the timing and staffing of our projects.

As a global producer of many basic and essential commodities, I think ADM perhaps better positioned than most to manage through economic downturns, although certainly we are not immune.

Our balance sheet is very strong.

We do remain focused on managing our operations, managing our risks and executing our strategy.

So I will hand it over to Steve now, and we will come back in a moment for Q&A.

Steve?

Thanks, Pat.

And good morning, everyone.

If you have already reviewed the slides accompanying this call, you will have noticed that we have made some changes to the format and content of the slide deck.

We hope you find the changes helpful.

Starting off then at slide five.

You will see our financial highlights for this quarter.

Segment operating profit decreased $140 million, or 15% this quarter, as declines in bio products and in our other segments more than offset the improved results of Oilseeds Processing and AG Services.

And I will go into more details on the major segment operating profit changes in a few minutes when we cover slides seven through 10.

Quarterly net earnings and earnings per share increased 24% and 25%, respectively, as our lower segment operating profit was more than offset by a credit from the change in our LIFO inventory reserves which continue to fall in line with lower commodity prices.

On an after tax basis, LIFO changes favorably impacted earnings this quarter by $.12 per share compared to a charge of $.22 per share during last year's quarter.

In the appendix to the slide deck, you will find more detailed historical information by quarter on the - - of the impact of LIFO on earnings and on our RONA measure.

Our effective tax rate for the quarter was 29.2%, down from just under 31% last year, due principally to changes in the geographic mix of our pretax earnings.

As we look at the full fiscal year, - - look forward to the full fiscal year, we expect our tax rate to remain in that 29% to 30% range.

And for the trailing 12 months, our ROE stands at 18.7% and our LIFO adjusted RONA came in at 13.5%.

Turn to slide six.

Slide six shows the summary of our operating profit by segment and by sub segment, detailing the changes in operating profit for both the quarter and six months.

Let's turn straight to slide seven to begin the review of each individual segment in more detail starting with Oilseeds Processing.

Oilseeds Processing had another very strong quarter.

On a year-over-year basis, quarterly operating profit for this segment rose 46% to $319 million, up from $219 million in the year-ago quarter.

Crushing and origination results improved $46 million to $187 million, and from a crushing perspective, coming into this quarter, we had a good bit of business book forward with good margins and we executed this business during the quarter.

As the quarter moved along, we did experience a decline in crushing margins as product demands slowed and farmers continued to be reluctant sellers.

Origination results remain strong for the quarter overall and our fertilizer results decreased due to both lower sales volumes and margins.

In our refining packaging biodiesel and other results, they improved globally, increasing $40 million to $86 million for the quarter, generally reflecting good refining margins in all geographic regions, due in part to our diversification in both packaged oil, as well as in biodiesel.

Biodiesel results improved in part due to good demand on our [Rovanopolis], Brazil facility.

As you may recall this plant was still in start-up mode during last year's second quarter.

Additionally, results for our second quarter last year included asset abandonment charges of $15 million.

Oilseed results in Asia increased $14 million for the quarter due principally to improved earnings of our equity and investee Wilmar International Limited.

As a reminder, we do record results from this investment one quarter in arrears.

So this quarter for us includes Wilmar's September quarterly results, which showed better palm and soybean merchandising and processing income.

As we look at current market conditions, last year's US soybean crop was about 2.96 billion bushels and a carry out as projected at about 225 million bushels.

Most projections are calling for somewhat smaller South American crops.

But of course the ultimate size of this crop will depend on the weather.

Global soybean supplies are likely to remain somewhat tight which would encourage additional acres to be planted in the US.

Global protein meal demand for calendar year 2009 is slowing.

USDEA projects that the growth in China will roughly offset declines in the rest of the world.

2008 protein meal demand grew at 3.6% rate and historical growth rate is 4% to 5%.

For the US census numbers, US crushing rates are trending down in response to the slowing protein meal demand and slowing export demand.

As we look at the board crush margins reflected in the futures market today, they generally reflect the cash margin environment.

Again, per the census, vegetable oil inventories are flat.

In biodiesel, demand in Brazil is robust, driven by the implementation of the B3 mandate this past July, and there is discussion of moving this mandate to B4.

And Germany has just moved it's blending mandate to B7.

Moving to Corn Processing on slide eight.

Operating results for Corn Processing fell to $29 million for the quarter as operating conditions, especially in the bioproducts business were extremely difficult this quarter.

We continued working our way through higher net corn costs.

We were able to generally maintain profitability for sweeteners and starches as higher average selling prices and improved results of our International joint ventures compensated for the higher net corn costs.

Ethanol margins collapsed during the quarter as demand for transportation fuels dropped and gasoline prices declined.

All while net corn costs remained relatively high.

Additionally, the excess ethanol industry production capacity and the resulting supply, demand imbalance has kept a lid on selling prices.

In addition, the following - - falling ethanol market prices caused us to write down the value of our ethanol inventory during the quarter.

Looking at current market conditions, last year's US corn crop of 12.1 billion bushels was the second largest crop on record.

The carry out of 1.79 billion bushels should be an ample supply level.

Lower year-over-year levels of carbonated soft drink consumption has resulted in reduced corn sweetener volumes industry wide.

We realized a mid, single-digit weighted average price increase for sweeteners and starches during our contract negotiations for 2009.

And we are optimistic that this increase will result in improved margins in 2009.

Currently, ethanol spot prices are $.40 to $.50 a gallon over unleaded gasoline.

Although we are obviously experiencing challenges in the ethanol business as the industry goes through its expansion on the way to supplying longer term RFS requirements, we believe that ethanol is an attractive long-term market for ADM and a good long term investment for our Company.

Let's now turn to slide nine and review the operating performance of our Agricultural Services segment.

Operating earnings for this segment once again reached record levels, rising to $462 million for the quarter, an increase of $147 million, or 47% from the second quarter of fiscal 2008.

And merchandising and handling, we continue to benefit in the second quarter from our forward sales positions coming into the quarter.

And once again, we are able to capture excellent results from opportunities arising from commodity priced volatility.

Our income from storage and drying also rose during the quarter as the large crops that were harvested and the relatively late harvest resulted in less field drying and required additional drying time at our elevators.

Transportation results increased $20 million for the quarter, to an increase in barge revenue due principally to higher rate rates.

Volumes were comparable, and operating costs were relatively unchanged as fuel costs leveled out.

Looking at current market conditions, the soybean harvest is starting in Brazil and we will see what opportunities arise from the uncertainties in the size of the South American crops.

World wheat production reached a record 683 million metric tons last year which enhanced the global supply of feed stuffs.

We see a good global supply of wheat.

It is really too early to comment US farmer planning intentions.

But we are confident our network will provide us with good insight, region by region, as we move toward planting season.

We do not see the same levels - - at this point in time, we do not see the levels of disparity and dislocation in the grain market that we have experienced in previous quarters.

US exports are still low compared to last year.

Soybean exports are up, but corn is down.

Slide 10.

Slide 10 is an operating profit analysis of our other segment, which shows an overall decrease of $141 million from last year's second quarter.

Our other processing business, which by the way will include the results of our recent entry into sugar cane processing, had decreased results due principally to the $40 million noncash operating loss related to currency losses incurred by our equity investee Gruma S.A.

which we discussed with you on last quarter's call.

Similar to our investment in Wilmar, we record our share of Gruma's result a quarter in arrears, so our December results reflect Gruma's September quarter.

Wheat processing results increased as margins improved on broadly comparable sales and production volumes.

Cocoa processing results also increased due principally to better processing margins.

In other financial, we recorded a loss this quarter due primarily to loss provisions at the Companies at our captive insurance unit.

In addition, our futures commissioner merchant operation had reduced interest income and marketable security gains and we recorded lower earnings from our managed fund investments as these investments continued to wind down.

Our captive insurance operations, which provides certain property, casual, marine and other insurance coverages for ADM risks as well as for third parties, recorded sizable loss provisions this quarter as a result of claims related to property damage, principally losses due to an explosion at our Destrehan export elevator facility in October.

We also recorded losses in the captive for various ADM related business interruption claims, including the spring 2008 floods.

Looking at current market conditions, in the wheat flower milling area, we see steady demand and the large North American wheat crop has provided ample milling quality wheat for the industry.

Demand has flattened out in cocoa, and we are seeing customers back off a bit on their forward purchase cover from traditional levels.

Cocoa bean crop is similar in size to last year's.

And the final outcome of Gruma's foreign currency derivative positions remains uncertain.

Based on Gruma's press releases a partial settlement has been reached with one of the counter parties and that some additional loan funding has been secured to help finance the losses.

We further understand they are still in negotiations to close out the remaining part of their position and reach settlement terms with their counter parties.

Based on Gruma's public statement made back in October, we are estimating that we will record further noncash losses related to their foreign currency derivatives positions in our third quarter.

Gruma has not yet released its December quarterly results.

As a note our carrying value of our investment in Gruma as of December 2008 is approximately $250 million.

Turning to slide 11.

Slide 11 looks at the major components of our Corporate line which reflects income of $11 million for the quarter compared to last year's quarter's net expense of $270 million.

With the continuing decline in commodity market prices between October and December, our LIFO inventory reserves decreased a further $123 million this quarter.

Last year's second quarter LIFO charge of $225 million reflected the impact of increasing commodity prices during that time period.

As you can see on this slide, this is a swing of nearly $350 million pretax between the comparable second quarters, which equates to a swing of approximately $.34 per share on an after tax basis.

Corporate investment income and expense decreased $70 million, primarily due to an increase in interest expense related to our additional long-term borrowings.

Decreased interest income, both external and inner Company due principally to lower interest rates and those items were partially offset by an increase in capitalized interest costs related to our large capital projects.

Unallocated Corporate costs and other were comparable quarter over quarter.

Slide 12.

Moving away now from the operating segment view to the financial statement format, slide 12 reflects the statement of earnings highlights for the quarter and six months.

Overall, net sales and other operating income were relatively unchanged this quarter.

Higher average selling prices due principally to the year-over-year increase in underlying commodity costs were offset by decreased sales volumes and by the foreign exchange translation effects caused by the impact of the strengthening US dollar.

Gross profit increased $264 million, or 28% this quarter to $1.2 billion, due principally to the LIFO inventory reserve movement partially offset by the decreased segment operating profit that we just discussed.

Selling, general and administrative expenses varied by less than $1million quarter-to-quarter as lower personnel-related expenses and the impact of foreign currency translation on non US dollar denominated costs were offset by increased provisions for doubtful accounts.

Other income and expense net had a swing of about $125 million quarter-over-quarter, and this line item is made up by external interest expense and investment income, gains and losses on marketable securities, earnings of our equity investees, and minority interest expense.

Our interest expense net of investment income increased due to the additional long-term expense and a reduced short-term income.

Equity earnings from affiliates was $31 million lower primarily related to the Gruma loss.

Minority interest was $12 million higher and gains from sales of marketable securities fell by $13 million.

Turning to slide 13, we selected some balance sheet items to highlight comparing our December 31 balance sheet with our June 30 year end balance sheet.

As shown here, our strong earnings for the first half of fiscal year and our reduced working capital requirements due to the drop in commodity prices have significantly impacted our balance sheet over the past six months.

Operating working capital is down.

Debt is down, as you can see we have no Commercial paper outstanding, and our cash balances are up.

Our net PP&E continues to rise due principally to the spending on our major seven capital projects.

Now turning to our cash flow statement on slide 14.

On slide 14 we've have laid out the significant items impacting our cash flows for the six months and I will just touch quickly on a few of the larger items.

As I just mentioned for the balance sheet highlights, cash generated from operations before the impact of changes in working capital was up nearly 50%, to slightly more than $2 billion due principally to our record six month earnings.

In addition, we generated $3.8 billion of cash flow from changes in working capital requirements for the quarter primarily due to reduced inventory and receivable levels resulting from the significant decline in commodity prices.

Our capital expenditures have been just over $1 billion for the first six months.

And just over $2.6 billion of debt principally short-term commercial paper borrowing has been paid down so far this year.

The key takeaways from slide 13 and 14 is that our balance sheet is getting stronger and that we continue to increase our financial flexibility.

And we put a chart together on slide 15 that further illustrates our financial conditions.

On slide 15, the blue bars depict our liquidity over the past 30 months in the terms of cash, short-term marketable securities, and available commercial paper capacity.

You can see from the chart that we have come through the recent volatility in the commodities market with substantial liquidity and that our long-term debt to equity levels have returned to a much more comfortable 28%.

We are well positioned to cope with market conditions, as well as being well positioned for market opportunities both large and small, that may present themselves in today's challenging economic climate.

Slide 16.

Slide 16 provides an update of our current financial performance using return on equity and RONA, return on net assets adjusted for LIFO.

Both metrics are presented here on a rolling four quarter basis.

As you would expect with the decline in commodity prices, our working capital asset base is declining.

It is smoothed here a bit by the rolling four quarters effect and our fixed asset base is rising in line with the expenditures on our major capital projects.

RONA adjusted for LIFO now stands at 13.5% and ROE is at 18.7%.

Both solid numbers in the light of the volatile market conditions we have seen and a significant amount of pre productive capital that is currently on our balance sheet.

At this time, I will turn the call back over to Pat, and we will be glad to take your questions.

Thank you, Steve.

Operator, if you would please open the call for questions.

John Rice, Steve Mills and myself are here to respond.

(Operator Instructions) Your first question comes from the line of Terry Bivens with J.P.

Morgan.

Please proceed with your question.

Good morning, everyone.

Good morning, Terry.

I have two things this morning.

Just in terms of the LIFO charge, a bit bigger than we were looking for.

Can you break that down?

Was it more the composition of the inventories or the level of inventories?

Well, Terry, this is - - this calculation and this decline was principally price.

We don't adjust our volumes on a quarter-to-quarter basis for this calculation based on how the rules dictate how we do LIFO.

So this is strictly a price decline in our LIFO based inventories.

Okay.

Then just in terms of cash on the balance sheet, obviously there's - - there's quite a bit here.

Is - - how would you characterize that, Steve?

Is that more a measure of just prudence here or - - there's always been the question obviously as to why - - why there isn't a more aggressive share repurchase.

And I know you guys are always on the lookout for acquisitions.

If you can kind of give us your view on the need and the likelihood that the cash levels will stay where they are now.

Well that's a good question, Terry.

And the conservative folks here in Decatur like to have a little cash on the balance sheet to start with.

We know we have a business that does have volatility from time to time.

From the share repurchase perspective, we've commented several times that the rating agencies have - - have in our discussions with the rating agencies, we have agreed for us to be able to maintain our rating where it is at that share buybacks are going to be put on the shelf for the time being until we have a little more certainly over the future of commodity prices.

So we have cash on the balance sheet.

As you know most of that's built up here just recently, and we've got it there for - - whatever uses we need it for.

Okay.

Very good.

I will pass it along.

Thank you.

Thanks.

Your next question comes from the line of Christine Mccracken from Cleveland Research.

Please proceed with your question.

Good morning.

Good morning, Christine.

Just on the ethanol industry.

Obviously, things are a little tough there.

I am wondering if you are continuing on your plan relative to your new capacity.

And if you could just comment on the write downs in your ethanol business.

Our current plans are, yes, we are on pace to finish our ethanol plants.

We still feel they are very well integrated with our wet mill plants.

And will give us a competitive advantage.

Long term, we're still very positive to this industry.

We saw there was going to be an over building when everybody built up to 15 billion gallons when the mandate was closer to 10.

So this didn't come as a surprise.

But like in Steve's comments, the slowdown in gasoline demand took us a little bit by surprise.

But long term we still feel very positive about the industry.

One thing I will add, Christine, and then maybe I will ask Steve to comment on the ethanol write downs.

We are looking at all of our projects.

I think it is prudent to do so, whether they are ethanol or any of the other ones under construction to see any way we can continue to optimize costs as they - - as they are built out.

So that is something we will update you on our capital projects at the next call, particularly after the winter and also after all of our - - our optimizing cost reviews.

Steve, on ethanol inventories.

Yes, on the inventories, Christine.

Of course we had falling market prices during the quarter and we took some write downs on the inventory we carried into the quarter as well as on some of the ethanol we produced during the quarter which as prices went down.

And that over the quarter period we estimate that at about 60, 6-0 million for the pretax for the quarter.

Okay.

And just in terms of the number of companies that are struggling here.

Do you anticipate some rationalization of capacity?

Is that how you see kind of the industry developing here?

And would you consider given some of these values of these companies, getting involved where - - you might have some - - a hole in your network.

Well, we feel a capacity right now is right around about 12.9 billion.

We have about 2.7 billion shut down in the industry.

The industry is running right about a 10.2.

The mandate this year is 10.5.

There will be 12 billion next year.

Yes, we are always looking at opportunities.

Which plants make the most sense for us.

Which is a good location.

Other plants we just don't think they fit into our long-term strategy or make financial sense for us to invest in.

So we are just going to stay away from those.

So, yes, we are always looking at different opportunities out there.

That's helpful.

Thank you.

Your next question comes from the line of Christina McGlone with Deutsche Bank.

Please proceed with your question.

Good morning.

Good morning, Christina.

My question has to do with the liquidity that you highlighted, Steve.

I am curious.

I mean, in my opinion, you are probably the best positioned company in my universe to go through this global slowdown and I can see you pick up a lot of distressed assets similar to that rape seed facility in Germany.

I am just curious where is your focus in terms of investment.

Where should we look for you to deploy capital?

That is a great question and we appreciate the comment, Christina.

We believe we are well positioned as well.

Of course as a global Company, we are looking in all corners of the world, in all areas of the business.

You know these -- as we all know these were unprecedented times.

So I would hate to limit our scope anywhere either by geography or by line of business.

I think our eyes are wide open right now.

So there is no point of focus like logistics or geography or - - increasing your product line.

There is no specific point of focus?

Well, I don't think so, Christina.

Because we know the value chain is there.

So we have got - - we have got opportunities all along the value chain.

We are especially interested in opportunities that help leverage that chain even more than we do today, whether that be on the origination, transportation, processing new products.

So I think it is safe to say we are not limiting ourselves here.

Okay.

And then are we still looking to $2 billion to $2.5 billion on CapEx this fiscal year?

That is the pace we are on now and I think we will probably still fit into that.

Do you think for fiscal '10 since it is kind of right around the corner, will we see a step down or is that a continued level?

I think we will be off of this 2 - 2.5.

And to Pat's comments a minute ago.

In this time of challenge, we are challenging ourselves from a cost and efficiency perspective to see what we can do to - - to optimize our cost structure at our existing - - on our existing projects.

But I don't think there is any question at this point in time we see that number falling off.

Okay.

But we are not through with our look forward process for 2010.

Christina, I may add to that.

You know there is deflation in the markets out there and to the extent there are some parts, either equipment, steel, labor even that we have not locked in.

There is a chance to, again, optimize those costs on these projects, and we are challenging.

John has made several visits even recently this past week in defining and identifying further cost optimization while still being able to complete these projects.

Okay.

And, John, you talked about being a slightly short of the mandate this year.

Will it just be satisfied by RIN's's - - and then ethanol coming in through the Caribbean?

Or is there any risk to modification of the RFS this year?

I don't think there is any risk to the modification of the RFS.

It all has to do with what the RBOB and plats market versus the ethanol market at any given time.

If - - the other day when unleaded gas spikes up $.15 a gallon, people may start blending more ethanol.

So it's kind of a moving target.

But I think right now using a 10/5 blend is a pretty good number.

Do you know how many RIN's exist?

I do but not off the top of my head.

Okay.

I will follow up off line.

Just last question.

Steve, it sounded like when you were talking about AG Services and Oilseeds, you had gone into the quarter with certain positions.

And now they have seemed to have rolled off.

Should we be looking at a significant sequential decline from both of those businesses from here?

I will let you draw the conclusions from my comments.

Okay.

Thank you.

Thanks, Christina.

Your next question comes from the line of David Driscoll with Citi Investment Research.

Thank you.

Good morning, everyone.

Good morning, David.

Hi, David.

John, I would like to pick up where Christina left off there on the - - on the comments that you all made in the prepared script about AG Services and Oilseeds.

This is a vital point, because the question that I think probably most of us are getting all the time is the sustainability and profitability.

Starting number one in AG Services and then secondly in Oilseeds as it has pertained to maybe similar trends from AG Services.

So the question here is - - is is it accurate that in your comments, what you guys have said is that - - and again this kind of follows on to my questions from the last conference call.

You saw really exceptional conditions in the marketplace prior to the US soybean harvest that led to a wonderful opportunity for ADM which you capitalized on.

And we have seen now two quarters in a row fairly spectacular profitable within AG Services and in Oilseed Processing.

But again if we hear you right, what you are saying is that kind of coming to its end and you said I think - - and this is what I am really hoping you will clear up here, is that as the quarter progressed new business that is being booked is being booked at much lower margins.

John, can you give us some understanding as to what these markets look like?

Yes.

The first thing I want to say is every day we come into this office, and we always look at new opportunities.

What is out there.

What opportunities can ADM take advantage of today.

So to say what is going to happen forward, it is always a little tough.

But when you look at the facts, and that's what you are asking about.

We are seeing lower meat demand.

Poultry numbers are down.

Layer numbers are down.

We are not seeing the corn exports out of the United States.

We saw rain in Argentina overnight so that crop is starting to get a little bit better.

The Rio Grande do Sul is getting a little bit more rain.

So you always have dynamics that are always changing at any given day, at any given week.

We are always looking at those.

But when you look at the numbers and that's what I think you asked me about last time was demand is down.

We are seeing a slowing in the economy.

People are not eating out as much.

So, yes, you would think that over the time, that margins - - and we have slowed down our crushing operations.

Margins have deteriorated from last year.

Okay.

When I cut the numbers a different direction and I look at just the processing operations, this quarter seems to have shown - - when you take Oilseeds, Corn Processing , cocoa and wheat, put it all together and just look at the run rate, for all of fiscal '08.

Pat, you guys generated about 65% of your profitable from the processing ops.

And I have always thought that that was the elements that were - - kind of the good elements because we would have some confidence that they would have some ongoing sustainability.

That number has dropped to less than half of the profitability for the current quarter.

So it feels like it is just confirming a number of these statements.

Would you guys agree with

You go first.

It is always a little tough, because we always look at everything through our total value chain.

We are really so integrated.

We break our businesses down, but we work together so closely in all of our businesses globally.

So at times, we are - - somebody may end up buying soybeans in the AG Services area that can easily transfer over to the Oilseed area.

So it is tough to just break it and try to slice it that fine in my opinion.

I think your comment, though, David, is fair that processing in general as we said is down.

So you would argue that any part of the value chain that is down while you hope and see opportunities where other parts can pick up, there are the facts that processing is down, yes.

Okay.

Just one final question and then I will pass it along.

We have seen a rather spectacular decline in - - in shipping freight rates.

Can you comment on what type of impact that has on Archer Daniels?

It hasn't had a real large impact on ADM here lately.

We've - - it really had more of an impact on cheaper products to our customers with some freights gone from just say $100,000 a day down to $5,000 to $7,500 a day.

It does impact us on dispatch and submerge, but to say that it really impacts us in any particular time, currently it's not.

But we are looking at longer-term charters also right now.

So as freight rates go up, it could help us.

If I just translate - - I want to tie off one risk that I get asked about a lot.

It is not like people should think that ADM was substantially long freight, and that upon a decline in these marketplaces that that's a significant negative to you.

You are saying that you - - you can mitigate those types of issues and that you are not - - it is not a big negative to ADM.

Is that a fair characterization?

I am sorry, David.

I will jump in a little bit, David.

You know freight is a component.

We have to be deal with freight every day in some - - some people can see it as another commodity.

We have to manage that.

But we - - again, just like all of our other businesses, I think we have extremely good risk management around that.

We are always - - so there is always some exposure, but I think we are comfortable with how we've managed the risks through on this freight.

I might also comment, David, that as freight rates were extremely high we took a lot of that management of risk from our customers and did a lot more shipping to destinations.

So we kind of understand the business, and I think we are in a good position to manage that cost and that commodity at a good time.

It doesn't sound like a big concern.

Okay.

Thank you very much for all the answers.

Thank you, David.

Your next question comes from the line of Ken Zaslow with BMO Capital Markets.

Please proceed with your question.

Good morning, everyone.

Hi, Ken.

I know you don't manage your call or anything to the stock price or anything like that.

And I find that extremely respectable, what I am trying to figure out is how to give you credit for the AG Services business.

And what I am trying to get at is, over the last - - six quarters, the AG Services business has - - has generated an average profitability of say $320 million, give or take a couple million dollars.

Can you just talk to - - what has actually changed in this business if I go back five years, four years ago.

We are not even close to that number.

Is there something that you've done?

Is there something that has changed?

Or is it just that the market conditions just created opportunities?

Is there hiring?

Is there risk management?

What has changed.

Well, let me start and then I will let our guys boast a little bit about their own capability.

You know I think we have been building our capabilities in AG Services, both the human - - capability, as well as physical assets, which - - included in this area are storage, transportation, drying facilities, port facilities.

We have built that out to be able to deal with markets and market conditions and market disruptions that - - are these kinds of opportunities that you described in these many several quarters where we have had extraordinary earnings.

In addition, because of the credit issues in the market, I think our strong credit ratings, our strong, if you will, balance sheet and customer relations, origination relations have been an advantage to us both on - - the cost and the access to working capital required to continue our merchandising and crop origination in a way that - - some people don't have access to this - - to this liquidity that we have.

So I think it is a clear longer-term strength, but I think it is a strength that has shone out and borne out in this time of volatility.

So have you hired more people?

Is it just the infrastructure?

Is there some sort of quantification of something that can help - - Again, I am trying to be on your side on this one.

I just can't - - Morgan is not going to give you credit for something we can't forecast in any way.

I am just trying to figure out if there is some sort of a change over the last two years that - - beside the market conditions.

Let me let John and Steve comment too.

We've had - - Ken, as you know, we have had very good or I shouldn't say good, very high volatility here in the last couple of years in these markets.

And what - - with just different areas of the world not having crops and our ability to be able to move crops from one area to the other area and our communication.

We have a very good staff of people working around the globe, working together, coordinating to make sure everything works together.

And our group has just done an excellent job here in the last two to three years.

And I just have to give them a lot of - - a lot of accolades for all that.

All right.

You asked about additional people.

I think we have had additional - - if you want to call it training as well as experience in these very difficult markets.

And I will give John credit for - - and the team for all that they have done to work through and actually - - work through mistakes as well as work through successes to really develop a higher capability.

I think we do have a higher capability than we had say five years ago.

Okay.

In terms of the volumes - - this may not be a huge point, but Oilseed Processing was down 5%.

When we think about crushing going forward, we always think about utilization rates - - something that is often forgotten.

I see the spreads and up guys see the spreads but utilization rates, does this imply that there is a slowing of your utilization rate?

Is there something to that that we should be a little more cautious on?

Is that an issue that we should think about?

Ken, the answer to that question is, yes.

There is - - the utilization rates for both the industry and ourselves are slowing.

And - - it is simple because demand is slowing down.

And where we see it - - kind of everyone is slowing.

So how does the industry manage through that?

Will you be - - will the industry be reducing capacity?

Will you be turning off different facilities so you will only work certain days a week?

How does that play out over the next - - again, I see the protein companies obviously cutting production.

So I am assuming - - are you swapping around the country - - the world.

How does it play out?

That depends.

We will look at our operation, what makes the most sense, cost effectiveness.

Whether we run a plan on a 10/4 or whether we run it slow, whether we take more - - do our maintenance now as opposed to during the summertime.

And what we think about the long-term demands.

We will manage each plant differently, region by region.

South America has been running slow just because we are just starting harvest now.

Now they are starting to pick up their crush rate.

Europe, we have been able to run a little harder just because we have had biodiesel demand over there and biodiesel sales on the books.

The United States, we've had slower protein and oil demands, so we have had to run our plants slower.

So it is something we manage on a weekly basis.

We are always constantly looking at it.

The world is on a hand-to-mouth basis buying-wise right now.

People come in today for tomorrow's shipments.

So that will add a little more volatility also in the market going forward and how you manage your - - and run our operations.

You don't want to give us any specifics?

Well it changes.

We're not running all of our plants on a 10/ 4.

We're not running then all slow.

Some plants have better operations so we may run one plant a little harder and some plant may be located right in the middle of the poultry region and doesn't see the meal demand.

So he may not run as hard?

I appreciate it.

Thank you.

One thing to add to that, Ken, as you get off the call.

With more than 200 plants around the world, there is the opportunity to do this differently depending on the regional expectations and the regional demand in the area.

Your next question comes from the line of Vincent Andrews with Morgan Stanley.

Please proceed with your question.

Thank you.

Good morning, everybody.

Hi, Vincent.

I've got a couple of quick ones and I then I might try my hand at the AG Services issue.

The first is, has anything changed either from your perspective in terms of farmer credit availability in South America or the industry's perspective?

Are you lending more now than you were maybe last quarter or the quarter before?

I'll - - I'll start with that and if anyone wants to join me here.

But we have historically been a lender to the South American farmer either cash or inputs.

And that - - the amounts of that have increased year-over-year since we have been in the business.

So we continue to participate there as well as I believe some of the others in the industry.

But it somewhat dependent on their own individual resources.

And one of the big factors is the banking system in Brazil and its availability of cash for the farmers.

But from our particular situation, we continue to lend, and we have continued to increase that lending year-over-year.

But given that you cited your fertilizer volume in Brazil being down, is it reasonable to assume that is a function of your lending being down as well?

No, I don't think that's fair.

I mean our - - the - - what we call pre financing which, again is partially inputs and partially cash is there really to help us secure the crop in the long term.

So it is not necessarily a specific issue of fertilizer.

That is one component.

But our overall pre financing is continued - - continued to go up.

Okay.

And then - - on ethanol, I couldn't tell from your comments, but the issues that affected you in this quarter that you just reported, sounded like some of them are going to linger into the next quarter.

But can you give us a sense about whether you will be profitable in ethanol - - bioproducts, excuse me, in the coming quarter?

Well, we are all jumping in saying it is hard to say.

Maybe I will start.

It's - - it is a little hard to say what probably will - - it really depends on how gasoline demand goes.

Whether there is continued incremental blending or a little bit of increase in incremental blending.

It depends where the balance of the supply demand comes out.

If there is even slower ethanol demand as a result of just slower gasoline demand that will affect us.

When you think about when the balance of production and the new RFS requirements come into play, that should be early 2010.

We see more plants shutting down it seems like every week.

But everybody is still currently - - it seems like they buy corn today, they turn around and want to sell their ethanol today.

And they put in there as long as they make a little bit of cash flow.

So margins are very difficult in this environment right now.

And I guess I will just add from the - - from the inventory write downs that we took during the quarter, if you make the assumption that prices don't go down further, we should not see the impact of write downs because that - - that is by definition.

So, again, we will have to see where it goes.

And let's pretend prices go up, is there inventory that you would have to write up?

You wouldn't write it up, but it would be sold at a margin.

Understood.

Were any of those write downs related to third party - - in the last quarter you talked about benefiting from third-party ethanol marketing that you started to do and you didn't mention that this quarter.

So I just wanted to tie those two things together.

- - no, most of the sale of third party is for the most part back-to-back.

It's not a big component of our inventories.

Okay.

And then my understanding that there is about - - 1.5 million RIN credits - - billion RIN credits out there.

And current economics, a lot of people are speculating that those will all get used which would and John, you said that there's 10.2 of capacity still in play right now.

It would make it sound like - - if all of those RIN credits are going to get used that 10.2 number will come down.

Do you feel like given your cost position, your balance sheet, the reliability of your distribution system, that from a volume perspective, your - - your contribution to that reduction in - - in sales volumes would - - come pro rata with your market share?

Or that you given probably being a better supplier or more reliable supplier given those attributes, that you probably would not give up volume.

Does that make sense?

Yes.

Currently I do not see us giving up any volume.

We feel we have a cost advantage in the market.

We also have a distribution advantage in the market.

We are trading gallons with other people to help supplement the market also.

But at this time, we feel under the current market conditions, we would not be slowing down our operations.

Okay.

And now I will take a crack at AG Services.

My way of looking at is going to be - - as Ken noted five out of the last six quarters you have had kind of these outside results.

And you kind of gotten up to a mid single digit operating margin which is not outrageous by any stretch of the imagination.

Why shouldn't that margin be sustainable on a go-forward basis.

Why shouldn't you just be able to charge more for your services?

As long as the volumes are there in any particular market, you are exactly right.

The problem gets to be as like in the United States this year where we do not have the export volumes coming out.

You tend to have a little bit more excess capacity down at the - - down at New Orleans.

Now the hurricane took out one of our facilities, so that did tighten capacity back up a little bit.

One thing about AG Services, we have to remember it is all about buying from the farm, taking it through our elevator, taking it through our transportation, putting it on our barges, trading wheat in Europe, trading wheat in Ukraine, buying it out of Australia.

I mean, it is a great big world out there and there is a lot of different factors in this that all add up just with our volumes.

I am just surprised that you guys aren't a little more bullish given - - it appears the crop in South America's going to be a little more difficult - - it's going to be difficult.

And probably smaller which seems like would present - -

I don't - - with the rains the last night - - all of a sudden everybody's feeling better about the Argentine crop and the Brazilian crop.

So it is always a moving target.

Now the exports long about April move out of the United States in soy beans and start coming out of South America.

So that can affect our North American AG Service and we will start exporting those soy beans out of either Argentina or Brazil.

I would just think that given your - - the size of it coming out of the US.

You know one thing, Vincent, may be a good way to think about it is you can plan a little bit and you can hear our comments about what we think some of the opportunities will be, but we manage this in real time.

This is a big real time business.

And we will just have to see where the weather and opportunities are.

Okay.

Thank you very much for all that and I will pass it along.

Thank you.

Your next question comes from the line of Joe Gomez with Oppenheimer.

Please proceed with your question.

Good morning.

Good morning, Joe.

I was wondering if you might be able to provide a little more color a little detail about the increase in the provision for doubtful accounts.

I know back in December you didn't seem to be too worried that the and the counter party risk.

I was just wondering if you could provide some more color there.

Well we are always worried.

That's my nature, that's my job here to worry about these kind of things.

As we have said several times today, we are a big Company with lots of risks.

We don't think we have any - - anything significant, but there isn't any question that it's a tougher world out there economically for all of our counter parties.

And so as we always do we are very prudent in our approach.

We are careful.

We have had - - I am touching wood here that we - - had not historically had significant problems.

We don't anticipate them, but as we go through these kinds of times, we do set - - we set up provisions.

And it is not a material amount, but in that call, Joe, we were-just describing SG&A which hadn't moved much on a quarter-over quarter basis.

To the extent that we have had reduced personnel-related expenses which is is a good thing, the offset to that - - majority of those items came out of provisions but it's not a significant number.

Okay.

I was wondering if you might be able to talk a little bit, provide some additional detail on the acquisition of the German chocolate manufacturer and kind of what size the acquired business.

Well, it is a chocolate - - it is in the industrial chocolate business in Mannheim, Germany.

It also - - we are looking at that operation and how does it fit in.

Maybe we will be able to consolidate some of our other operations to make the whole European chocolate manufacturing more efficient.

So it just really is our long-term strategy to get more into the industrial chocolate was really the main reason behind that acquisition.

Yes.

And I will just chime in here.

It is a good fit.

Both - - both from what it does and where it does.

Now, of course, it is still subject to clearance by the relevant antitrust authorities in Europe.

So the closing on the deal will be timed on that.

But we are excited about this opportunity.

Again, we think - - we think it is a great fit.

Okay.

Thanks.

You are welcome.

Thank you, Joe.

Your next question comes from the line Robert Moskow with Credit Suisse.

Please proceed with your question.

Hi.

Hi, Rob.

Hi, how are you doing.

On the RONA target for 13%.

Can you give us a little more color on what your targets might be per division.

You know was it on the AG Services side?

Do you have a RONA target for those assets?

Is it lower than the rest of the portfolio?

No, we don't have those targets by segment.

We - - as we look at our business as one - one line of business, one value chain.

So we don't go and do that.

Okay.

But - - but aren't margins at least typically higher in certain elements of your business?

Can you give us any kind of sense of how to think about the disparities of - - of how those businesses work?

Or you don't look at it that way.

I think there are several ways to look at it.

As we evaluate each of the businesses, there is always a different mix of assets.

For example, AG Services carries a lot more working capital.

Processing divisions by definition have more fixed assets.

But we look at - - as we look at projects here and returns, we are looking at every project one at a time, look at it as a stand-alone.

We look at it how it leverages the - - the rest of the business.

So we test - - we literally test every decision to see how it fits into the whole.

We look at IRR - - payback as well as RONA for any particular set of projects.

And as Steve said - - it really depends on how it fits.

And just one quick follow-up.

On corn, you actually sound a little more optimistic than I thought on the profitability outlook for corn syrup.

Are you saying that the higher selling prices plus maybe some byproduct credits are helping you there?

I thought that the byproduct values were very, very weak in corn and that would actually hurt profitability going forward.

Are you seeing something different?

Byproduct credits are less but also corn is down from its high.

We are seeing lower oil prices, lower DDG's, and meal prices.

But I don't think it is anything out of the ordinary.

I guess what I'm more concerned about maybe this year are just the volumes.

We are seeing lower volumes of starches.

We are seeing lower volumes in soft drinks.

So maybe the operation may have to run a little less which could raise our operating costs.

So that would be a little bit of the concern I guess on our side.

If corn continues to track down from here, John, do you think that would be benefit to your margins going forward?

We always like to say that cheaper corn is benefits for our margins.

Okay.

Thank you.

Your next question comes from the line of Ian Horowitz with Soleil Securities.

Please proceed with your question.

Hi, everyone.

Hi, Ian.

I assume that the lack of update on the capital projects means that kind of everything is still kind of going on track and on course?

I would say the lack of update is more - - it is the middle of the winter here.

So one question is we always try to update once we get to the spring.

Secondly, as I mentioned, we are kind of reviewing all relative to optimizing costs.

We think we can find some optimization here in some of this deflationary time.

We will update you on the next call if - - as far as anything we learn with that with you.

Okay.

Steve, in the past, you guys have offered up cost per metric ton produce.

Are you guys not going to be delivering that segment anymore?

I don't think that we are going to do that.

We - - we put it out there.

There is no question cost is important to us, but that particular metric just didn't seem on a consolidated combined basis that - - when we look at costs, it is more - - from an internal perspective, that number just didn't seem to be working on the outside.

Okay.

We do have - - and just as an addition, we have established a cost team in the organization that is pouring through every - - every cost everywhere looking for best practices, places that we can optimize.

So it is always been a focus of ADM in my long career here, and I think it will always continue to be.

But we just thought that the metric itself just wasn't - - didn't turn out to be as useful as we thought it would.

Each organization has cost metrics that are really valuable to them, but one across the entire organization per metric ton we thought was a shot at it.

I am not sure how useful it it really was.

We continue to look for one that works for all of ADM.

But frankly what really works is the ones for the individual plants, the organizations and the individual business segments.

Sure.

We found just even currencies played so much would affect the cost per metric ton.

The metric itself exactly like Pat said didn't seem to work out like we anticipated.

Okay.

Understood.

Steve, in this upcoming - - actually in the second calendar quarter, will we see the reduction in debt on your balance sheet due to the - - for the [Teles] JV.

Stay that again.

I guess I didn't follow that completely.

Sorry.

When the metabolics JV comes on line, which I think is in the calendar second quarter of '09.

Will we see debt that you are carrying on your balance sheet now move into the Teles JV or will it have no impact on your balance sheet?

It will have really no impact on the balance sheet.

We - - the way that JV works, we're - - we are pretty much the funding mechanism for - - for this.

So we don't see much change when - - that comes on.

Those costs associated don't then move into - - some sort of off balance sheet Teles financial statement?

It - - we, in essence, ADM is a creditor to the joint venture.

I mean eventually the joint venture will be a stand-alone company, and once it gets rolling, et cetera.

But - - but it won't have any material change to our balance sheet for the foreseeable future.

Okay.

And then question for John.

You know we see - - something, $2 plus billion shut in of capacity right now in the ethanol business.

I am just wondering what your opinion is on how this - - this will kind of roll out.

I would assume that some of this capacity would - - just never becomes.

Has a difficult time kind of surviving through this environment.

But do you see the - - some portion of this capacity rolling back online, possibly in different ownership structures as the - - as the mandate kind of grows?

I would say that the possibility is for all that - - we have been through this and a lot of our industries over the history of the Company.

Where everybody, the exuberance of this industry, everybody just comes out and builds a plant without the financial backing and knowing that things are going to turn around and get - - and turn negative for a little bit of a while.

As Steve said, we came in here with our eyes wide open.

We felt like we were going to have a downturn in this industry for a short period of time.

Some of these plants I don't feel will start back up.

Others probably will start back up with new ownership.

A lot of it has to do with the cost structure, how well they can manage their corn position and may even get the ethanol to different markets around the United States.

Do they have the infrastructure to be able to handle that.

And do they have the wherewithal to be able to handle the byproduct credits.

It's not just what the byproduct credit is in their local market but what's the whole world situation.

That's what gives us I think our distinct advantage in this whole market.

Yes, and I kind of agree.

And so when I look at the difficulties that may present themselves for the remainder of this calendar year in - - in ethanol, and how the mandate will be serviced in 2009.

Wouldn't you agree that in 2010, we are kind of - - we are - - we are going to be a much more physical market.

And those kind of left with large positions of capacity will be able to take advantage of - - potentially a much better environment where - - this won't be as much of a credit driven market as it will be truly complying with a physical mandate?

Yes.

The numbers right now would indicate that, that near the end of 2009, early 2010, that the markets should come back into more balance supply and demand.

Great.

And the RIN's won't be carried over either.

Right.

So 2010, the way it is structured right now will have zero excess RIN's, correct?

I don't know if zero is the right number but potentially - - yes.

I don't know if zero is the right answer but something significantly less than we have now.

Correct.

And then the last question and then I will get back in queue.

Can you give us some indication of enforcement of this RFS.

- - what we are hearing is - - kind of everything has been shelved for the time being with the new administration about how to - - on all different kinds of the policies.

And I am not quite sure - - that the timing of an enforcement program and how - - how or why blenders are even concerned about an RFS right now when there is no economic incentive to blend ethanol and there is no enforcement of the mandate.

Well two things, Ian.

One is I think the current administration as they look toward their whole set of priorities when you look at the energy piece.

There is support to continue not only the RFS but continue support for biofuels in general, first and second generation and implementation or enforcement thereof.

So that is a general statement.

That is not a lot of specifics.

Your other part of the statement was just related to what incentive.

I mean blenders need to meet mandated requirements and then it's an economic incentive above that to blend greater gallons.

Why don't - - why do they need to meet mandated requirements now when there is no enforcement of - - no real penalties for missing blend levels?

Well, they are complying with the rules, and we are seeing that in the market.

We are seeing compliance.

Okay, great, thanks.

I will get back in queue.

Okay.

Thank you.

(Operator Instructions) Your next question comes from the line of Chris Bledsoe with Barclays.

Please proceed with your question.

Good morning.

Hi, Chris

You mentioned just a couple of months back, I think it was in Cedar Rapids about doing more work on replacement costs.

I was wondering if - - if you had - - where you are on that analysis.

If there is any interesting findings on it.

And probably most importantly, whether your share price - - currently implies a discount to the - - to the implied enterprise value.

Frankly, we haven't spent a lot of time on it, Chris.

We in the long list of priorities, it just hasn't risen high enough to do it.

So it is a fair question.

And we will put it in the queue, but it is just not at the top of the list right now.

Okay.

Also it sounds to me just - - from listening to your prepared remarks.

There was sort of an element of maybe managing expectations a bit about the outlook.

And I can certainly understand - - where that would be coming from from with the magnitude of the macro headwinds that are sort of out there.

But - - in recent quarters you have put up some outside gains.

And it seems to me it was really driven in no small part by the organizations intellectual capital, the risk management and proprietary activities.

Are you basically now saying, I guess that the - - I don't want to put words in your mouth, but I am trying to understand if you are now saying the organization - - just from kind of an intellectual capital perspective, maybe didn't anticipate either the magnitude or the duration of some of the macro - - headwinds in this current downturn, and that, therefore, we shouldn't expect these outside gains in coming quarters.

Well, Chris, first of all - - we are not trying to manage expectations.

We are trying to share with you everything we can relative to our knowledge about the markets that are relevant to our analysis both looking back and then sharing current market conditions.

So we know a lot about markets, but markets change.

And as - - and the investment in the intellectual capital is so that we can capture those market changes as they occur, taking advantage of our network and understanding where products are needed.

But you can't forecast something that you don't know the extent of the change.

So, yes, that intellectual capital is there to do and absolutely optimize and I think excel at that risk management and use of that network, but markets change.

Okay.

So I certainly understand.

- - it is not so much a change even that I am - - sort of asking about rather than sort of a - - I mean, it was more kind of extraordinary events in prior quarters.

It seemed that you were able to take advantage of and some of those simply not repeating themselves necessarily.

Or from an intellectual capital perspective not necessarily being able to repeat those types of gains.

But - - I certainly understand what you are saying.

It really just depends on the opportunities as they present themselves and that is not necessarily something that you can forecast.

Yes, you said that quite well.

And I am not saying we can't repeat it, I am just saying we don't know, markets change.

Okay.

Understood.

And then - - if I sort of contrast that to some of your peers, who - - are looking at calendar 2009 and I think anticipating a back-half recovery.

And maybe that is not so much a comment about just kind of intellectual capital and the ability to get themselves on the right side of a trade as much as it is just the broader macro environment expecting a back-half recovery.

Is that - - based on what you are seeing in your major end markets and sort of the level of that you understand some of these end markets to be in right now,.

Is that even a reasonable expectation for kind of a back-half recovery.

- - setting aside what it may mean or may not mean for ADM's results just from a more macro perspective.

Well - - who knows in some cases.

I often ask when I am with different colleagues whether it is ADM or out.

Are we in the second or third inning of this game or are we in the ninth inning of this game.

And the answer is everything in between, including whatever particular market you are involved with.

If you were involved in the electronics business, you have a different view than if you are involved in AG.

You have a different view if you are involved in Europe and Asia than you might in the US.

So I think it really depends.

Certainly we can't speak for our competitors.

But I think that the basic message about ADM's strength is that if it is a lengthier recovery or even a sooner recovery, we are extremely well-positioned to end.

And with a strong balance sheet to be able to - - work through this lull even if it is short or lengthier and hopefully, even increase our shareholder value with the opportunities presented.

Okay.

And then my last question would just be, in looking at ethanol profitability relative to sweetener profitability, this seems to be - - at least in recent memory the biggest kind of disconnect with HFCS type of returns.

And sweetener type of returns right now pretty healthy for '09 but with ethanol obviously very depressed.

So I think you used to get the question, are you concerned about capacity swinging into sweeteners.

So I guess I am curious still on that front, but also even beyond just swinging of capacity.

Are there - - ethanol producers that are in enough duress right now where they may be looking at kind of just salvage value of their assets.

And what percent of - - the assets are - - of the equipment going into an ethanol facility, what percent of that equipment can actually be applied to - - a sweetener end market.

To take a dry mill and make a sweetener product, very little of it.

It would be the elevator.

Would be about the only portion of it.

I don't see any of these ethanol plants.

It takes a lot more capital to get into dextrose, sweeteners, a lot of these other products and I don't see any of these plants doing that.

I - - all the contracting is done for 2009.

I did mention where we - - there seems to be less volume in starches and sweeteners.

So people may be running their plants a little less.

We are - - that's why we are constantly looking at new products we can make from corn such as PHA, where you have propylene/ethylene glycol plant coming on, lisack, it's a super absorbent.

So we are always constantly looking at other products we can make from corn to help expand our corn grind and give us more flexibilities, just for cases like this.

Some of those have come on maybe this year and others down the path, but that's what we are constantly looking at for this type of environment.

Because we are always wanting to try the long term increase our corn grind.

But when the demand is down, it does affect our profitability and operating costs.

I guess the other day there was a competitor of yours that commented on a new ethanol plant that they have got coming on line and the flexibility to swing capacity.

But it's still your view that is potentially a zero some gain for the industry and capacity?

Any swing - - wet mill or dry mill capacity?

Dry mill capacity.

I think it is a zero some gain.

All right, thank you.

Thanks, Chris.

There are no further questions at this time.

I would now like to turn the call back over to Pat Woertz.

Very good.

Thank you, everyone, for your questions and comments today.

We look forward to seeing many of you at CAGNY which of course will be later this month.

We have that noted in the last slide there as far as our CAGNY Days and the next date of our next call.

Thank you, bye-bye.

Thank you for your participation in today's conference call.

This concludes the presentation.

You may now disconnect.

Good day.