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The recovery in China’s hog herd and renewed interest in biofuels, particularly from emerging green diesel solutions, will ensure that 2021 continues to deliver “very strong” results for US agriculture major Archer-Daniels-Midland, a senior executive has told an online conference late Wednesday.
Building on themes delivered in the company’s last quarterly results, Ray Young, executive vice president and chief financial officer, set out areas of expected growth through the year that would build on the record results delivered in 2020.
“This is not a one-year phenomenon… the hog herd continues to rebuild in China… Inclusion rates of feed, whether it be from soybean or from corn is going to continue to increase,” Young told delegates at the Bank of America 2021 Global Agriculture & Materials Conference.
While meal demand is expected to continue to contract at a rate of 2-3% over the year, vegetable oil demand is set to recover strongly after being hit hard by Covid-related demand contractions amid increased incentive to roll out advanced biodiesels.
“This new element of vegetable oil demand we expect strong demand for oils, vegetable oils, because of really the new renewable green diesel element,” Young said.
Together, the outlooks will underpin growth for the agri-major as it targets a billion-dollar operating profit objective by 2024.
Dismissing fears around a resurgence in African swine fever cases in some parts of China, the executive expects the Chinese government to contain the outbreak, while underlying changes to the industry mean the sector does not face the same dangers it did in 2018.
“They’ve also shifted a lot of the hog raising away from smaller farmers… into the professional hog rearing operations, whereby the sanitary conditions are far better and they can actually control the disease,” Young noted.
And that recovery continues to deliver a fundamental demand driver from the country, which is compounded by a faster bounce back in Chinese economic activity after the country quickly dealt with the Covid-19 pandemic.
“That’s the primary driver as to why China has been aggressively importing last year. And we expect them to continue to be aggressive importing this year,” Young said.
The recovery means ADM expects China’s soybean imports to top 100 million mt in 2021, but the big increase in corn buying is likely to propel the country’s corn imports to 25 million mt, with around 20 million mt likely to be sourced from the US.
“This is fundamental demand… which is driving what China is doing in terms of importation of agricultural products from around the world,” Young concluded.
On the subject of biofuel demand, ADM anticipate further purchases of ethanol in 2021, despite China suspending its rollout of an E10 mandate – gasoline with a 10% renewable ethanol content.
That comes as recovering driving demand through the second half the year is expected to boost demand and build on China’s existing commitment to buy 200 million gallons of US ethanol as well as propel US driving demand higher.
For green diesel, however, Young ruled out ADM becoming a producer of renewable diesel, but an expansion in US production capacity in the years ahead is likely to deliver a sizeable upswing in demand for feedstocks, such as soybeans.
“People talked about 3 billion gallons of new renewable green diesel capacity over the next three or four years and let’s assume that even two-thirds of that materialize, you’re talking about 2 billion gallons, right? And that will require about 15 billion pounds of feedstock,” Young said.
That uptick in demand is likely to keep in the US volumes of used cooking oil that have been exported in the past despite supply being bolstered as the catering sector recovers after lockdown measures.
“I do think this is a favourable environment, frankly, a very favourable environment for vegetable oil demand over the next five years,” Young said.
And that growth in protein demand is expected to underpin strong crush performances in its core areas of the US and Europe, along with new capacity added in Brazil and across the wider soft seed complex.
“Sometimes people focus a lot on soybean crush, but we’ve got a pretty large soft seed crush footprint, right? So about, from our perspective, about 9 million metric tons, or about 25% of our global crush footprint is in soft seed,” Young highlighted.