FORT LAUDERDALE, FLA. — With a renewed organizational focus on customers begun several years ago, ADM has been emphasizing the importance of quality of earnings in addition to quantity, seeking a return on invested capital and synergies that can smooth out volatile markets over the long haul and helping farmers embrace regenerative agriculture in a more secure, value-added future.
ADM underwent an exercise a few years ago in which the global agribusiness looked at all of its businesses, down to specific assets, identified the strategic fit and looked at the return structure associated with those businesses and assets. As a result, a number of facilities and businesses were adjusted or sold, said Greg Morris, president, Ag Services and Oilseeds at ADM, who was speaking at the Bank of America 2023 Global Agriculture and Materials Conference, held March 1-2 in Fort Lauderdale.
“We went through a period of time where we made some significant portfolio adjustments, exiting underperforming businesses, low-returning businesses, volatile-returning businesses and replacing those with businesses that we believe were going to have a much more steady trajectory in terms of the earnings growth,” he said
Mr. Morris said assets that are high-volume, high-throughput are desired, while buy-and-hold facilities are less interesting. The result was “a little bit of pruning” on the front end with Ag Services. At the same time, some investments were made on the downstream side with in-country distribution around the world. These investments have allowed ADM to get closer to the customer to better understand their needs.
“We talk about destination marketing and the work that we’re doing on that end of the value chain,” Mr. Morris said. “We’ve made some opportunistic acquisitions. We bought a couple of fantastic high-throughput facilities, grain facilities in Indiana. They’ve been a nice plug-and-play in our network. We’ve made a number of investments just kind of in our existing facilities to improve the throughput and the volume that we handle. That’s how I think about Ag Services, and our goal is to continue to push more volume through the network without taking unnecessary additional risk.”
Mr. Morris noted that on the crushing side of the business, ADM purchased assets from Brazil-based Algar Agro in 2018, including oilseeds processing facilities in Uberlândia in the state of Minas Gerais, and Porto Franco in Maranhão as part of its strategic global growth. ADM is also near the commissioning of a new crush plant in Spiritwood, SD. He said Spiritwood is expected to come online at the end of the third quarter or early fourth quarter this year.
The Brazil business, which features two crush plants, about a dozen grain elevators and a bottled oil business has lived up to expectations with excellent margins, he said.
The Spiritwood soybean plant will be a joint venture with Marathon Petroleum Corp. known as Green Bison Soy Processing. Construction was announced in 2022 as the first dedicated soybean processing facility in North Dakota, and it will add 1.5 million tonnes of crush capacity to ADM’s network. It is expected to produce about 600 million lbs of refined vegetable oil annually, which will be supplied exclusively to MPC as a feedstock for renewable diesel, a booming market segment spurring growth across the agriculture industry.
At the same time as the Spiritwood announcement, ADM set out to expand its refining capacity in Quincy, Ill., on the Mississippi River. Mr. Morris said Quincy usually had a mismatch between its crush capacity and refined oils capacity.
“Traditionally, it’s been OK to just export the crude oil down the river,” he said. “Given everything that’s happening with renewable green diesel and the demand expansion, we expanded our refining capacity in Quincy to better match up with our crush. That project was completed last year. It’s up and running, and it’s been a nice addition to the network as well.”
On the nutrition side of crushing and refining, Mr. Morris offered a pair of examples that demonstrate ADM’s co-location synergies and efficient sourcing: facilities in Decatur, Ill., and Campo Grande, Brazil.
The Decatur site has a protein specialties plant, known as the east complex, and one of the company’s largest soybean processing plants, the west complex. Sourcing soybeans into Decatur, ADM can send higher protein soybeans to its east complex for processing into food-grade proteins. It is the same in Camp Grande, where ADM invested in a protein specialties plant that it built next to an existing crush plant to better manage the raw materials coming into the location.
“We’re looking at how do we leverage our origination capabilities to best complement the corporation, not just my business unit,” he said. “So for Nutrition, it’s the raw material piece. But also, as you think about the broader specialty ingredients business, let’s say, the human nutrition business, a lot of their raw materials come out of facilities (in my division). So whether it’s the vitamin E production and the raw material source for that, whether it’s lecithin or whether it’s the food-grade proteins, a lot of their basic raw materials come from (those) processing facilities. There’s a natural connectivity there between what they’re doing (in Nutrition) and how they’re going to market as a further extension of my (division’s) value chain.”
In addition, ADM’s work with regenerative agriculture is seen as a benefit, not just for Ag Services and Oilseeds, but also for the entire company. Noting that about 70% of the carbon created in the agricultural value chain originates on farms, ADM is rewarding farmers to the extent it can for doing things differently. Cover crops are one step, but ADM also is meeting farmers halfway with programs that can help them introduce environmentally friendly farming practices as well.
“I think a sustainable business model needs to be a profitable business model,” he said. “Our customers have to see value in it. The producers have to see value in it, and we have to see value in managing a more complex value chain, whether it’s data, whether it’s segregation, whether it’s IP (intellectual property). I think when we can strike the right balance between those three entities, and so they look at it all as a value-add for them, then I think we’ve created a sustainable business model that can actually help improve the environment. That’s the way I think about it.”
In 2021, ADM had about 150,000 acres that it considered regenerative agriculture acres in its program. ADM finished 2022 with 1 million acres and more than 2,000 farmers signed up for its program. ADM has partnered with Farmers Business Network, using technology to help track, monitor and quantify the impact of regenerative farming practices. A complex value chain requires more data properly analyzed so as not to introduce additional costs as part of regenerative agriculture practices.
“I think if we can strike the right balance between additional complexity, making sure that we track and monitor and what we’re representing is really happening on the farm and the benefits are real and do that in a manner that preserves the cost structure that the industry has been built on, then I think you find the right balance and you don’t impose unnecessary burden on the food system,” Mr. Morris said.
For its part, ADM has recognized the need to reduce its own industrial emissions. The company has been capturing and storing carbon underground for several years. As of July 2022, ADM’s overall carbon capture and sequestration capabilities — the Illinois-Basin Decatur Project and the Illinois Industrial Sources Carbon Capture and Storage Project, — have allowed it to safely and permanently store more than 3.5 million tonnes of CO2.
“We’re actively working on expanding our abilities, our capacity to sequester,” Mr. Morris said. “We’ve announced the pipeline work that we’re doing to try to connect other ADM facilities into that sequestration complex. That’s absolutely front and center in terms of our ability to address our own carbon footprint.”