Archer Daniels Midland sees benefits in 2022 from strong renewable fuel demand

Archer Daniels Midland is increasing its 2022 capital spending to about $1.3 billion to fund expansion projects that are underway, including the North Dakota joint venture to provide Marathon Petroleum renewable fuel feedstock, CEO Juan Luciano said on the Jan. 25 Q4 2021 results call.

The growth in demand for renewable diesel and sustainable aviation fuel in the US has increased the pull on renewable feedstocks like soybean oil, benefiting agricultural producers like ADM.

"As we enter 2022, we're well situated to capitalize on strong crush margins, driven by good demand for meal and for vegetable oil as a feedstock for renewable green diesel," said Luciano.

"We continue to believe we will add around 1 billion gallons/year of incremental RGD and approach 5 billion gallons total capacity by 2025," he added.

This will include the increase in soy crushing capacity at ADM's Spiritwood, North Dakota, plant by 1.5 million mt by 2023 under the terms of the joint venture with Marathon signed in December.

When online, the facility will have the ability to produce 600 million pounds of refined soy oil annually – or enough to make 75 million gallons of renewable diesel annually.

Marathon has the sole offtake contract and will use it to supply its Dickinson, North Dakota, facility as well as its Martinez, California, plant expected to start production in late 2022.

Luciano notes vegetable oil consumption is growing faster than supply, and will increase with the wave of new RD and SAF projects expected to come online at the end of 2022.

US renewable diesel production capacity was about 1 billion gallons/year in 2021 and is expected to grow by about 80%-90% in 2022 as new projects come online in the second half of the year, according to forecasts by S&P Global Platts Analytics.

However, Luciano said that "projects are not that easy to execute" and some may be delayed or cancelled.

"So, we tend to look at that from a long-term basis and maybe something like two-thirds, or 75%, will happen. At this point in time, we see the volume coming our way," he said.

ADM expects soybean oil to account for about 45% of renewable fuel feedstock in 2025, slightly lower than the 48% market share in 2021, according to Platts Analytics.

Increased demand growth for soybean oil will come at the expense of exports.

"I think there is going to be a diversion away from exports to soybean oil. There could even be some diversions away from food applications," said Ray Young, ADM's chief financial officer on the call.

Ethanol outlook positive

ADM reported historically high ethanol margins of $1.45/gal in Q4 2021 compared with the 23 cents/gal margin in Q3 2021, giving the company a positive outlook for ethanol in 2022.

"We are seeing ethanol demand probably returning to pre-pandemic levels here in the United States. So, we are talking demand at the 14 billion gallons level," said Young.

Besides the return to more normal US gasoline demand, the company expects margins to be supported by increased exports and more blending due to the Environmental Protection Agency's stance on denying issuance of 67 Small Refinery Exemptions under Renewable Fuel Standard to refineries under 75,000 b/d that have requested them.

"What we see right now is going forward... is the SREs will not have an impact in terms of ...supply/demand balances. And when we talk about 15 billion gallons, it means 15 billion gallons we have to deliver to the marketplace," Young added, referring to the EPA's 2022 volume mandate, adding that refiner challenges to the SRE rule are expected.

Young noted the EPA also has "remanded 250 million gallons in terms of requirements going forward."

ADM is also optimistic that the $1/gal federal Blenders Tax Credit, due to expire at the end of 2022, will be extended despite the stalling of the Biden Administration's Build Back Better Act, given it is a non-partisan issue in corn-producing states.

ADM expects ethanol exports to be "very constructive" in 2022, with volumes of between 1.4 billion to 1.5 billion gallons, Young said.