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Archer-Daniels-Midland Company (NYSE:ADM)
Q3 2021 Earnings Call
Oct 26, 2021, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Hello and good morning and welcome to the ADM's Third Quarter 2021 Earnings Conference Call. [Operator Instructions]

I would now like to introduce your host for today's call, Vikram Luthar, Senior Vice President, Head of Investor Relations, Chief Financial Officer of Nutrition for ADM. Mr. Luthar, you may begin. Thank you, Emily. Good morning and welcome to ADM's third quarter earnings webcast. Starting tomorrow, a replay of today's webcast will be available at adm.com. For those following the presentation, please turn to Slide 2, the Company's safe harbor statement, which says that some of our comments and materials constitute forward-looking statements that reflect management's current views and estimates of future economic circumstances, industry conditions, company performance and financial results. These statements and materials are based on many assumptions and factors that are subject to risks and uncertainties. ADM has provided additional information in its reports on file with the SEC concerning assumptions and factors that could cause actual results to differ materially from those in this presentation, and you should carefully review the assumptions and factors in our SEC reports.

To the extent permitted under applicable law, ADM assumes no obligation to update any forward-looking statements as a result of new information or future events. On today's webcast, our Chairman and Chief Executive Officer, Juan Luciano, will provide an overview of the quarter and highlight some of our accomplishments. Our Chief Financial Officer, Ray Young, will review the drivers of our performance as well as corporate results and financial highlights. Then Juan will make some final comments, after which they will take your questions.

Please turn to Slide 3. I will now turn the call over to Juan.

Juan Luciano -- Chairman & Chief Executive Officer

Thank you, Vikram. This morning, we reported third quarter adjusted earnings per share of $0.97, let me say 9% year-over-year improvement despite a higher tax rate and our year-to-date adjusted EPS of $3.69. This is already above our full-year 2020 adjusted EPS. Adjusted segment operating profit was $1 billion, up 18% versus the third quarter of 2020 and our 8th consecutive quarter of year-over-year OP growth. Our trailing fourth quarter adjusted EBITDA was about $4.6 billion, almost a $1 billion more than a year ago. And our trailing fourth quarter average adjusted ROIC was 9.6%, significantly higher versus the year-ago period.

I remain proud to lead a global team that is delivering robust returns and sustained growth in profit. Our strong quarter and our ongoing upward trajectory, our system into our team's execution and agility and the consistent implementation of our strategic plan. I'd like to take a moment now to highlight some of our accomplishments from the quarter. Slide 4 please. I'd like to start by talking about our approach to portfolio management. Our starting point, if they believe that in order to thrive and create value, a company needs to have a dynamic view office business portfolio. So when we talked about the dramatic transformation of our portfolio over the last 10 years, it's not a discrete event. It is a representation of our continuous work to identify opportunities for growth and improvement. Of course, those opportunities may be the -- must be the right ones. The enduring trends of food security, health and well-being and sustainability provide unique and stable opportunities for ADM to expand our existing capabilities, and we are focusing our efforts on identifying high growth on trend areas with attractive margins and which are adjacent to our existing capabilities, that focusing from the building of our global nutrition business.

The acquisition of WILD gave us entry into flavors and a global taste platform. We then use bolt-on acquisitions to other adjacent capabilities and build a one-stop shop with an industry-leading pantry of ingredients and solutions for Human Nutrition. We did the same for Animal Nutrition with the acquisition of Neovia and we continue to do the same today across our business. In order to meet growing demand for sustainable solutions, we have announced a joint venture, an offtake agreement with Marathon Oil Company to support the production of renewable diesel. We are continuing to invest in key nutrition categories as demand for alternative protein grows from $10 billion to $30 billion over the next decade. We are further enhancing our capabilities with the acquisition of Sojaprotein. And with global demand for pet food grow into the $140 billion in the coming years.

We are continuing our growth with a 75% ownership stake in PetDine. In the early of microbiome, we've signed an agreement with Vland Biotech to launch a joint venture that we perfectly positioned to help meet $1 billion in retail demand for probiotics in China. These are just some examples of how we are dynamically positioned in our portfolio to continue driving growth for years to come. There will be more to come. And you can expect an increased level of investments to support our sustainable earnings growth and sort of that expand our capacity and capabilities.

Please turn to Slide 5. As part of our portfolio management approach, we're looking to evolve our Carbohydrate Solutions business, expanding our array of solutions to meet growing customer demand driven by the enduring trend of sustainability. We've made significant progress recently focused on two areas. New opportunities for our alcohol production, an ever growing volume solutions platform. Let me start with alcohol. Last Thursday, we announced that we reached an agreement, which we expect to close at the end of the month to sell our ethanol facility in Peoria. And yesterday, we announced a memorandum of understanding with Gevo to explore potential joint venture, one of which would include our Columbus and Cedar Rapids dry mills and our ethanol assets indicator transitioning 900 million gallons of ethanol production to support growing demand for low carbon sustainable aviation fuel. These actions represent our commitment to a process that we began when we first analysis to tissue review of our dry mills. Taken together, they will allow us to significantly reduce our exposure to vehicle fuel ethanol while using our expertise and assets to capitalize on new opportunities. SAF is one of those opportunities. The U.S. and EU have set goals that together with support almost 4 billion gallons of annual sustainable aviation fuel production by 2030 and more than 45 billion by 2050.

The other focus area for our Carbohydrate Solutions evolution were biosolutions growth platform. Biosolutions, which we launched a year ago, it's an effort focused on using our product streams to expand our participation in sustainable higher margin solutions for attractive end markets like pharmaceuticals and personal care. This is an area of significant potential and our team is doing a great job identifying new and exciting opportunities. Earlier this fall, for example, we signed an MoU with LG Chem for the production of lactic and polylactic acids for bioplastics, another plant-based products. These efforts and enable in biosolutions to deliver 10% annualized revenue growth including more than $80 million in new revenue wins in the first nine months of this year and we believe there are many new opportunities to come.

So from the transformation of our dry mills to our growing biosolutions platform, our work to evolve our work Carbohydrate Solutions capabilities is a perfect example of how we're managing our portfolio and delivering the smart strategic growth and one of the many reasons we remain convinced and our ability to deliver sustainable earnings growth in the years to come. I'll talk a little bit more about our business outlook at the end of our call. And of course, we'll be going into much more detail at our Global Investor Day on December 10th.

But in the meantime, I will turn the call to over to Ray to talk about our business performance. Ray?

Ray Young -- Chief Financial Officer

Great. Thanks, Juan. Slide 6, please. The Ag Services and royalties team continue their outstanding year with another quarter of substantial profit growth. In Ag Services, we're proud to tell the team executed in a challenging environment, including a swift return to operation after Hurricane Ida. Overall results were significantly lower versus the prior year quarter, driven by approximately $50 million in that timing effects that should reverse in coming quarters, as well as $54 million in insurance settlement recorded in the prior year period, and lower export volumes caused by Hurricane Ida. Global trade continues its strong performance. The Crushing team delivered substantially higher year-over-year results, executed well, delivering stronger margins in a dynamic environment that includes strong demand for vegetable oils to support our existing food customers as well as the increasing production of renewable diesel. Results were also driven by about $70 million in net positive timing effects in the quarter.

Refined Products and Other results were significantly higher than prior year period, driven by positive timing effects of approximately $80 million, our expected to reverse in future quarters. Strong execution in EMEA and North American biodiesel and strong refining premiums due to demand for renewable diesel and foodservice recovery in North America also contributed to the results. Equity earnings from Wilmar were lower year-over-year. Looking ahead, we expect to see continued fundamental demand strength for Ag Services and Oilseeds products including from China, as well as solid global soybean crush margin environment in the fourth quarter, partially offset by some higher manufacturing costs. In addition, RPO will be negatively impacted by timing reversals. All told, we expect results in the fourth quarter to be significantly higher than the third quarter of this year.

Slide 7 please. Carbohydrate Solutions results were lower year-over-year. The Startches and Sweetener sub segment including ethanol production from our wet mills showed their agility by managing through dynamic market conditions and optimizing mix between sweeteners and ethanol production through the quarter. Year-over-year results were significantly lower, primarily due to higher input costs. Vantage Corn Processors results were much higher versus the third quarter of 2020 supported by the resumption of production of at our two dry mills and improved fuel ethanol margins, particularly late in the quarter.

Looking ahead to the fourth quarter, we expect the solid fundamentals from the end of the third quarter to continue for Carbohydrate Solutions with good ethanol margins extending through the quarter due to industry supply demand balance and solid demand for corn oil and starches offset by higher manufacturing costs, particularly in Europe as well as the absence of the pure dry mill. Also fourth quarter results for the segment should be similar to the previous year fourth quarter.

On Slide 8, the Nutrition business remains on its solid growth trajectory was 17% higher revenues and 15% on a constant currency basis and 20% higher profits year-over-year and continued strong EBITDA margins. The human nutrition team delivered revenue growth of 12% year-over-year on a constant currency basis, helping to drive 9% higher profit, higher volume improved pilot mix, particular strength in beverage drove strong flavor results in EMEA in North America, partially offset by lower results in APAC. Specialty Ingredients continued to benefit from strong demand for alternative proteins, offset by some higher costs. Health & Wellness results were higher on robust sales growth in bioactives and fiber. Aninal Nutrition profits were nearly double the year-ago period and sales were up 19% on a constant currency basis, driven primarily by the strength in the mineral assets as well as feed additives and ingredients, partially offset by higher costs in LATAM and slower demand recovery in APAC. Looking ahead, we expect nutrition to continue on its impressive growth path with strength across the Human and Animal Nutrition leading to strong year-over-year earnings expansion in the fourth quarter and a 20% full year growth versus 2020.

Slide 9 please. Let me finish up with few observations from the other segment as well as some of the corporate line items. Other business results were substantially lower than the prior year period, driven primarily by captive insurance underwriting losses, most of which were offset by corresponding recoveries in the other business segments. We expect fourth quarter to have some additional insurance underwriting losses, resulting in a breakeven other business for the fourth quarter.

As expected, net interest expense for the quarter decreased year-over-year on lower interest rates and the favorable liability management actions taken in the prior year. In the corporate lines, unallocated corporate costs of $230 million were driven primarily by higher IT offerings and project-related costs and transverse cost into the centralized centers of excellence in supply chain and operation. Looking at total corporate costs including net interest, corporate unallcoated and other corporate, we are still on track fourth calendar year to be overall similar to 2020. The effective tax rate for the third quarter of 2021 was approximately 18%. We anticipate our calendar year adjusted effective tax rate to be the upper end of our previously communicated range of 14% through 16% and potentially a bit higher depending upon the geographic mix in the fourth quarter. Our balance sheet remains solid with a net debt to total capital ratio of about 26% and available liquidity of about $11.5 billion.

With that, I will turn it back to Juan.

Juan Luciano -- Chairman & Chief Executive Officer

Thank you, Ray. Slide 10 please. From consistent sustained profitable growth for the ongoing management of our business and product portfolio, our team has a lot to be positive. And there's one other thing we achieved last quarter that I want to mention. We have many team members impacted when Hurricane Ida hit in late August. So we provide temporary housing arrangements, portable generators, food and water and more. In fact, many ADM colleagues travelled through the region and spend time helping repair their coworkers damaged homes. I'm very proud of that and very thankful to our team. I put the rest of my close remarks those insured as we plan to go into our outlook in far more of this when our December 10 Global Investor Day.

As I look back at the third quarter and all of the last nine months, I continue to see a team and a company that are delivering on our goals and our purpose. We are closing out 2021 with great momentum. We are on track for a strong fourth quarter and the second consecutive year of record earnings per share. And as we look ahead to 2022, we see another strong year for ADM. Robust global demand environment will continue to go for opportunities for us to leverage our indispensable global origination, processing, and logistics capabilities. And nutrition will continue on its strong growth trajectory in line with our 15% per annum trend rate growth and on its way to $1 billion in operating profit in the coming years. Of course, there are things we continue to watch including energy costs and inflation more widely and much abilities to meet needs in the enduring trend areas of food security, health and wellbeing and sustainability and a truly unparallel team of nearly 40,000 colleagues around the world, we remain very optimistic in a strong year to come.

With that, Emily, please open the line for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question today comes from Ben Bienvenu from Stephens. Ben, your line is open.

Ben Bienvenu -- Stephens -- Analyst

Thanks. Good morning, everyone.

Ray Young -- Chief Financial Officer

Good morning, Ben.

Juan Luciano -- Chairman & Chief Executive Officer

Hey, Ben.

Ben Bienvenu -- Stephens -- Analyst

So I've got one long-term question with regards to your announcement yesterday around SAF. And then I want to ask a clarifier on the guidance. Well, so on the announcement yesterday, congratulations. A couple of questions. One is when you think about the total opportunity for SAF, obviously the embedded demand is significant given SAF seems like one of the most pertinent ways to reduce greenhouse gas emissions in the jet fuel market, the economics and producers that were unclear at this time. So I'm curious did you think about engaging with Gevo on this partnership? One, what got you comfortable to commit these facilities to this end market ultimately and then help us think about kind of the evolution of how the agreement will mature because it is a memorandum of understanding? Why did you go with that initially versus a more legally binding agreement? And then if you could just talk just to a bigger picture how you feel about the ultimate demand and implication for the ethanol markets, that would be helpful. I know a lot in there, but I'd love to hear you talk. Got it?

Juan Luciano -- Chairman & Chief Executive Officer

Thank you, Ben. Yeah, listen, you know we've been looking at options for the dry mills for sort of a very, very long time. So we've been studying there opportunities for the ADM shareholders too as we try to divest these assets. Certainly, when we look at the sustainability trends and the opportunities, remember, one of the issues we do are, they are very large, would become -- which became a little bit of an issue of the time of divesting them. So we were looking for opportunities that are sizable, we are that size turns into a competitive advantage. So certainly, when you look at all industries trying to be carbonize, the evolution in the industry is a marked industry that contributes to CO2 and we have identified, and we have checked with partners, strategic partners, people in the industry that they say yes is this solution.

And I think we see also concurrently that both the U.S. and the European governments are looking at this a year from now, try you heard, but it's in the buy, then or so good Granholm making statements about that. So we see a very, very positive environment developing for these a very sizable addressable market for us. And when you combined, I want to size with our raw material procurements on our costs and the ability to decarbonize based on our carbon capture and sequestration, but a few recall, we've been running since 2017, allow that complex to provide very competitive low CI fuels for the industry. There's going to be a lot of discussion from CI that, so we decided to announce these, so there are many opportunities and potentially it could happen, which is the creation of these two joint ventures. One of those joint ventures, ADM's contribution will be the two dry mills as our objective is, as you know, to deconsolidate these two. So again, but still many discussions to happen and many, many partners to join us into this, we are thinking over time to have a minority position in decent having probably strategic financial partners to join us. So, but overall, you can be assured this is a better outcome for our shareholders in terms of the realization of value from these two dry mills. So we're very excited about the opportunities.

Ben Bienvenu -- Stephens -- Analyst

Okay. Great. My next question is a clarifier and then a discussion to be expected you can on kind of 2022, first, great that I hear you say on the Ag Services and Oilseeds for the fourth quarter you expect it to be higher than the third quarter, but you didn't say higher than the fourth quarter last year. Is that -- are those kind of the goalposts we should be thinking about? That's part one. And then question two within that is export demand look strong for next year, obviously renewable diesel is continuing to gain steam, how do you feel about Ag Services and Crushing and that broader Ag Services and Oilseeds segments as we go into 2022?

Juan Luciano -- Chairman & Chief Executive Officer

Yeah. So Ben, listen, as we think about Q4 for ADM and when we say we expect a strong Q4, we look at strong crush margins demand, this is strong for broad things, but also the demand for oilseeds is very strong and high and then your RGV on top of that. We are facing an improved ethanol environment as we entered the Q4. We are estimating exports from the U.S. in volume similar to last year. So -- and if you think about the capacity situation last year, we didn't have reserve this year. Unfortunately one of our competitors' plant is down because of why that's so kind of about the same situation. And then we continue to see nutrition growing at 15% to 20%. So of course, we have inflation, we have energy issues the team is dealing with it and trying to mitigate, but we are coming into Q4 and into Q1 with a strong momentum.

If you look at Q1, we feel very strong about crush margins. Our export window given that in September with these and export that March is probably going to be extended into January and February a little bit like maybe even longer than last year. So we feel very good at the moment, but again with an environment that there are supply chain issues that our energy inflation rising. So we will have to manage all that, but from a demand perspective, we feel very good about it.

Operator

Our next comes from Luke Washer from Bank of America. Luke, your line is now open.

Luke Washer -- Bank of America -- Analyst

Thank you. Good morning, team.

Juan Luciano -- Chairman & Chief Executive Officer

Good morning.

Ray Young -- Chief Financial Officer

Good morning, Luke.

Luke Washer -- Bank of America -- Analyst

So I just wanted to ask a quick question, follow-up on Ben's. You mentioned that at the Peoria facility and this new MoU Gevo, you've done a lot with your ethanol assets. So just a clarifying point, is your strategic review of the ethanol assets completed? Are you still thinking about now how you're looking at your fuel ethanol capacity even in the wet mills? Or how is your thinking that evolved?

Juan Luciano -- Chairman & Chief Executive Officer

Yeah. No, I would say that the conclusion of protection we review ended in the best option for Peoria lift the divested which was basically shared about 135 million gallons of our ethanol capacity and then we are thinking about two-thirds of all our ethanol capacity in this the MoU with Gevo, exploring options to transfer that into sustainable aviation fluids. And again, in the process the consolidating because we're going to be contributing these two assets to the joint venture. So -- but of course we're going to have some exposure to ethanol on a long-term basis, because we're still on the webinars, but what you have to think about it is that in our analysis, the supply demand fundamentals change for ethanol. First of all, remember we always said we didn't like the undifferentiate in nature of dry mills, in wet mills, we have more options to protect margins and to protect returns, but second is by taking all this capacity out of the market, basically got 900 million gallons in about two years are going to move from vehicle ethanol to SAF feedstock. Then I think -- we think that supply demand fundamentals and the margin environment of ethanol will change. So we feel that, that concludes our strategic asset and of course, we need to now execute on this transaction would still have a lot to be discussed.

Luke Washer -- Bank of America -- Analyst

That makes sense. And then just staying on Carbohydrate Solutions quickly, Ray, I believe you said that operating profit in 4Q will be comparable to 4Q of last year, ethanol margins to certainly gotten a lot better and it looks like you believe that they will continue to be pretty good in 4Q. So when I think about the startches and sweetener side, it would seem that you're seeing quite a bit of maybe margin compression or at least lower operating profit, is this just a function of you have higher input costs? And then how are you thinking about what your selling some of your sweeteners and your starches that will offset some of that margin pressure potentially?

Ray Young -- Chief Financial Officer

Yeah, you're right. We're going to have some higher input costs which is energy costs, particularly over in Europe. So that's a little bit the headwind. At the same time, you're right, in the ethanol margins that we're seeing right now in the market are extremely healthy, and that's just reflective of a very tight supply demand situation right now and industry inventories have fallen down to 20 million barrels right now. And when you take a look at driving miles and gasoline demand, we're basically back to pre-pandemic levels of demand again. And so, on the positive side, I would have to say the ethanol margins are pretty robust. On the issue of Sweeteners and Starches, what's interesting is, while a lot of people kind of focus on HFCS guide the business, the other parts of our business are doing extremely well. The non-HFCS business, for example, citric acid demand is extremely strong. Startches demand extremely strong. So when we put it all together, that's the reason why we provide the guidance that there are some puts and takes. But we expect our fourth quarter for Carbohydrate Solutions to be similar to where we were last year.

Luke Washer -- Bank of America -- Analyst

Got it. Very good. Thank you.

Operator

Our next question comes from Ken Zaslow from Bank of Montreal. Ken, please go ahead.

Ken Zaslow -- Bank of Montreal -- Analyst

Good morning, guys.

Juan Luciano -- Chairman & Chief Executive Officer

Morning, Ben.

Ray Young -- Chief Financial Officer

Morning, Ben.

Ken Zaslow -- Bank of Montreal -- Analyst

The investments that you've made the several of in the 75% in the pet business, LG Chem, the ACAS bio, so how much capital have you deployed to this? What is the return expected on the -- I'll leave -- I'll start there and then I'll ask a follow-up to that?

Juan Luciano -- Chairman & Chief Executive Officer

Yeah. I mean I think we haven't disclosed the amount of capital in terms of the LG Chem, I mean that's still being discussed right now in terms of how the partnership will form on lactic acid and polylactic acid. The ACAS bio is not that significant. The big investment that you mentioned here is really the P4, the top-down investment, the parent company. And again, we decided to invest 75% into it, right. So therefore, I think we've kind of manage that capital there. So the total invested capital on these recent announcements actually is far less than $1 billion -- far less than $1 billion and this is consistent with the kind of the bolt-on type of investment numbers that we've talked about in the past, Ken.

Ken Zaslow -- Bank of Montreal -- Analyst

And then on the -- so your bolt-on investment. But if I take that and then while you said that in 2022 for nutrition, you -- so second half 15 and then you kind of blood is up a little bit to 15% to 20%, which is always nice to hear. But if you're adding less than $1 billion, it sounds like more than a bread basket, is that number of loans to start to accelerate relative and not just it seems to 20% is a bad number. It just seems like you're starting to put more capital to work. Would you start to see that number accelerate at what year and what type of returns that we expected or is it just not enough to make a difference? I'm just trying to kind of cement that my head?

Juan Luciano -- Chairman & Chief Executive Officer

Yeah, certainly, it can. We will see acceleration based on these investments. When we talked about our plan, our plan of 15%, that plan was not contemplating any significant acquisitions and we were thinking and getting to about a $1 billion OP in a couple of years, so that trajectory continues and will be accelerated some of these deals. Some of these deals you have to understand our just bolt-ons where we plug some capacity where we don't have like team soyaprotein things like that and some other ones become more platforms that actually give us the people to accelerate even more our growth side. So -- but we will continue in an investment phase on nutrition because the opportunities out there, our customers are reacting positively to our value proposition and we see our pipeline and our quarterly wins continue to grow. So as long as we can post numbers of revenue growth in the 15% range and OP growth in the 20% range, we know it's a good deal for the shareholders. So we're very pleased with the direction.

Ken Zaslow -- Bank of Montreal -- Analyst

One of the big picture question. One you outlined in every you do it, the press release, a consumer trend better you believe there's going to be the future of where we're going. I just want, you laid out eight, when you think of your portfolio, what percentage of your portfolio using targets those eight today? And then when I think about in three to five years, what percentage of your portfolio will target those eight items? And then I'll leave it there and I appreciate your time.

Juan Luciano -- Chairman & Chief Executive Officer

Yeah, that's a very good question for which will provide more granularity on the December 10 Investor Day. But I would say in general terms and that's where do you see us working on the evolution of the Carbohydrate Solutions portfolio, probably the Carbohydrate Solutions portfolio because we have the big assets is there one more difficult to adjust for some of these. We think that Ag Services and Oilseeds and Nutrition are much more aligned to that, and now that we are evolving the portfolio of Carb Solutions, we feel that the significant percentage of ADM's in couple of years will be aligned toward these trends, which makes us very, very optimistic about the future. We are very well positioned for all this long-term trends.

Ken Zaslow -- Bank of Montreal -- Analyst

But in the Analyst Day, your percentages or something to give some context like ahead by five years will be kind of percentage, some context is part of how you're thinking. So I just hope that you do that, we appreciate it. Thank you.

Juan Luciano -- Chairman & Chief Executive Officer

Yeah. We will provide that granularity. Thank you.

Operator

Our next question comes from Michael Piken from Cleveland Research, Michael, your line is open.

Michael Piken -- Cleveland Research -- Analyst

Yeah. I'm just understand a little bit better. Your outlook you mentioned that the outlook for China and their grain demand is going to be strong. Could you quantify what you think for their corn and soybean exports for the next year and then also could you share that with us?

Juan Luciano -- Chairman & Chief Executive Officer

Yeah, Mike. We still believe that growth in demand is very strong and when we look and we check with our team in China, we still believe that China will need to import about a 100 [million tons we will take of soybeans and about 25 million tonnes of core. So of that form the majority will come from the U.S., a little bit from Ukraine. So we think that the volumes, although maybe slightly in a different way than last year, right now consumers are a little bit more short-term more hand to mouth, if you will, because they were expecting from a little bit of a correction in prices, as we were hit in the heart of it. But we've seen Chinese buyers come to the U.S. in the last few weeks and we feel very good about this export season. You have to remember that we were in a tight situation from a supply demand perspective given these important numbers and then when you add that some of that capacity has been taken out, this will make it for a tight export season that will probably have rolled forward maybe a month since in October -- of the beginning of October of all these facilities. We're still trying to recover power.

Michael Piken -- Cleveland Research -- Analyst

Great. And then my follow-up is just, it seems like right now there are shortages of fertilizer and maybe glyphosate. What is your expectation for in Brazil or even in the U.S., but do you think we're going to be able to have enough fertilizer to plant crops around the world? And what does that mean for your fertilizer business that more broadly speaking? Are you worried about being able to get enough power plants that around the world or how -- what's the work around from that? Thanks.

Juan Luciano -- Chairman & Chief Executive Officer

Yeah. At this point in time, it's a matter of price, of course, natural gas have driven these up different situation when you are in Europe, when you are in North America, the North America is saying like five to six bucks, we're not sure, I got the Europe has been saying maybe 30, but I would say at this point in time, it continues to be available for farmers only at higher price to some. We haven't detected the big shift in acreage from one to the other, it is still a little bit early from a planting intentions and you could think that potentially could be a shift from corn to soybeans, that it's not clear yet. And probably the numbers today are a little bit of tough hub for the farmer on what to go, so for acreage for next year.

Michael Piken -- Cleveland Research -- Analyst

Okay, great. Thank you.

Juan Luciano -- Chairman & Chief Executive Officer

Thank you.

Operator

Our next question comes from Tom Simonitsch from JP Morgan. Tom, your line is open.

Tom Simonitsch -- JP Morgan -- Analyst

Thanks. Good morning, everyone.

Juan Luciano -- Chairman & Chief Executive Officer

Morning, Tom.

Ray Young -- Chief Financial Officer

Hey, Tom.

Tom Simonitsch -- JP Morgan -- Analyst

So you just opened a flavor production facility in China to serve as a supply hub in the region, what is your outlook for nutrition in Asia-Pacific compared to other regions? You've called out APAC is an area of weakness in both Human and Animal Nutrition in the last couple of quarters. So how much of that relative weakness is down to ADM's current capabilities in the region as opposed to product?

Juan Luciano -- Chairman & Chief Executive Officer

Yeah. You are right on that. I think that we've been very proud of being Nutrition, this mainly has been happening on the developed parts of the world, if you're willing which developing markets exposure is still all for ADM, whether we're talking about South America or to Asia-Pacific. So in Asia Pacific, we've been a player in flavors for a while and this is -- this is just an expansion, this is that about and now we're a way from a consumption solution, very good; from a raw material perspective, we still very good; from an access to a big consumption, very good and this will be very important for our customers. Our participation in Asia was limited to one plan for flavors and about a handful of plans for Animal Nutrition, and we continue to build that position in Animal Nutrition. We feel very good about this and then this opportunity in flavors, we will enhance our capabilities, not just production, but also market development and probably to the customer innovation centers. So you will see us going and putting more flags on the world in the developing areas whether it is Asia-Pacific or South America, as we need to go and support our global customers. These are our customers that we do business every day here and some of them are represented there, but also we have a lot of new local customers that are required in this capability. So it's just a natural evolution of the business if you will.

Tom Simonitsch -- JP Morgan -- Analyst

Thanks for that one. And just following up on SAF, what is your operating plan for the two dry mills between now and 2025,when the SAF production is expected to come online?

Juan Luciano -- Chairman & Chief Executive Officer

Yeah, I mean, we expect the construction around that area. There'll probably be some transition. But as we kind of look out over the next couple of years, we do expect that driving miles are going to be coming back. We're seeing tight S&D right now in terms of our industry. We're seeing frankly the rest of world is starting to recover from the pandemic. So we expect rest of the world driving miles to start recovering. And so, therefore, there is a lag in terms of recovery of exports of ethanol from United States to the rest of the world. So I think over the next couple of years, I think you're going to continue to see some level of demand recovery from outside of United States for ethanol. And then even China, as we've talked about, I mean their focus on the environment on energy, you could actually see China and you're returning back to the markets and we've seen -- we're seeing a little bit of that already.

Ray Young -- Chief Financial Officer

So let me clarify from that operations perspective. We're not going to be doing anything to these dry mills. The dry mills will produce ethanol and then there is downstream technology and capabilities that Gevo brings to the table to transform them into SAF, but those two plants will continue to produce ethanol as they are, we are not planning to invest capital into that. Our contribution is those two plans and then Gevo takes it from there from a downstream perspective.

Tom Simonitsch -- JP Morgan -- Analyst

That's very helpful. Thank you. I'll leave it there and pass it on.

Operator

Our next question comes from Ben Theurer from Barclays. Ben, please proceed.

Ben Theurer -- Barclays -- Analyst

Yeah. Good morning, Juan and Ray. Congrats on the results. Just two quick follow-up questions, one on Ag Service and I understand your commentary around the expectation into the fourth quarter, but just trying to maybe get a little bit of a sense differently. So, clearly you had some implications in the third quarter because of Hurricane Ida and you expect some of those effects to reverse in coming quarters. Are you comfortable enough that those almost immediately reversing and benefiting your fourth quarter? So to speak, have a chance to get some more close to where it was last year? So that would be my first question.

Juan Luciano -- Chairman & Chief Executive Officer

Yeah. I would say, we expect the strong quarter for Ag Services in this year and you have to understand, sometimes at the end of the year, it becomes complicated because there could be margin expansion in March and June construction here and the accounting rules [Technical Issues] read into Q1 and we need to respect that. What we're talking what we can determine from middle of October, which is today is the fundamentals on the market and demand is a strong and the export capacity was tight starting into these and we started to see our -- so we feel good about it. So I think [Technical Issues] and it's difficult to call it sometimes in Q4 versus Q1 because we are accounting groups and we can determine that now. We have to determine that at the end of the year.

Ben Theurer -- Barclays -- Analyst

Perfect. And then if we take a look at the at the nutrition business and you've highlighted it in your prepared remarks, obviously the very strong performance on the Animal Nutrition side almost doubling operating profit that in Human Nutrition on the other side, growth was just in the high single digits. Could you explore a little more on the details of what were the issues for the maybe little lower than what you would want to see growth in Human Nutrition? Was it more of an impact because of input cost pressure or you just didn't pass it on significantly in the way you would have wanted to? Or are there certain demand issues still in certain areas, just to understand a little better what's been driving the growth in Human Nutrition offsetting some of the growth, put it that way better?

Juan Luciano -- Chairman & Chief Executive Officer

Yeah. Well, if you look at the Human Nutrition for the water, we grew about revenue about plus percent. I mean, it's actually a pretty good number and I think if you look at where EBITDA margin on the sales, we were able to maintain that EBITDA margin also, so when you grow twice the industry clip, if you will and you maintain margins, so I was pretty satisfied, of course, it is not the spectacular maybe improvement year-over-year that Animal Nutrition had, but it's because Human Nutrition has been more stable and doing that you saw and in animal, we're still going through the Neovia integration and all those things, but no, I don't think it was a weak quarter at all actually. I think, as I said, we continue to grow or maybe twice the industry rate and maintaining very robust EBITDA margins on sales. So EBITDA margin on sales for flavors are north of 20% and we've been able to maintain despite...

Ben Theurer -- Barclays -- Analyst

Congrats again. Thank you very much.

Operator

Our next question is from Robert Moskow from Credit Suisse. Robert, please proceed.

Robert Moskow -- Credit Suisse -- Analyst

Hi, just a couple of cleanup questions. Can you talk about your pricing outlook for corn sweeteners? It would appear that corn prices have been on kind of a roller coaster that they're down off their highs, how is that impacting negotiations for next year? And then I had a follow-up on the pea protein market.

Ray Young -- Chief Financial Officer

Hey, Robert, it's Ray here. So the contracting season is underway and we expect HFC as volumes and margins to remain strong in 2022. Clearly there has been some volatility in terms of corn prices and that's frankly the input cost will get reflected in terms of our contract pricing and we do expect contract pricing to be higher next year compared to this year. Volume wise, we do expect volumes for claim to be similar to what we've seen this year. We are seeing recovery in terms of the foodservice sector I think what -- when I look at Carbohydrate Solutions in total non-HFCS is actually a very important component as well, and we've seen non-HFC pretty attractive with a good margin [Technical Issues] side and that is reflective of really a strong demand environment, for citric acids, for starches, for dex drills and other products. So that's another important factor when you take a look [Technical Issues]

Robert Moskow -- Credit Suisse -- Analyst

And then if you look at Carbohydrate Solutions business in top level for 2022, as I indicated earlier, would you think that the biofuel part of the business should be actually quite positive when you compare [Technical Issues]

Ray Young -- Chief Financial Officer

[Technical Issues] year compared to this year. So when you put it all together, we do expect carb solutions have another strong [Technical Issues].

Robert Moskow -- Credit Suisse -- Analyst

Okay. And then the follow-up on key proteins, you mentioned -- I think alternative protein briefly, I thought I heard that the pea crop in Canada was kind of weak, but my perception is that doesn't matter that much to processors like yourself, but maybe you can help me understand whether it does or it doesn't and how much volume are you doing in that market for the alternative meat end markets?

Juan Luciano -- Chairman & Chief Executive Officer

Facility and we feel pretty good about that business actually. In systems and pea protein that we see in some of these new verticals and both business is a relatively new. They have almost no revenue in 2020 for us and they are providing alternative solutions. So at this point in time, soy is the main driver for us. OP is our supplementary perspective is not a big impact, so we haven't felt any impacting our plant at all.

Robert Moskow -- Credit Suisse -- Analyst

Got it, OK. Thank you.

Juan Luciano -- Chairman & Chief Executive Officer

Thank you, Rob.

Operator

Our next question comes from Vincent Andrews from Morgan Stanley, Vincent, your line is open.

Vincent Andrews -- Morgan Stanley -- Analyst

Thank you and good morning, everyone. Juan, I just wanted to ask you on the LG Chem -- excise me, the LG Chem JV, why we set up in two JVs rather than just sort of one-integrated production of lactic acid and then into THA, what's the thought process behind having sort of an upstream and a downstream setup?

Juan Luciano -- Chairman & Chief Executive Officer

Yeah. This is a matter of where the expertise of each company lies. And then, to be honest also, we want to be asset light as possible. So in areas where LG is dominant and they're going to build that downstream capacity, when we think about biosolutions, I would object Vince is to make may be different ownership position, but we start making chemicals or application technology and all that, we cannot become a chemical company. So, in that we let the partner think of sort dominant position. So we make corn grain plus one, if you will, and then we let our partners take it from there. It's just a matter of optimized capital for us and not invest in areas where we are not -- that are not core for us -- core areas for us. We will continue to be food and feed and beverages. When we go into these materials, if we're going to produce grain liquid, that makes sense. And then we have the partner doing the best.

Vincent Andrews -- Morgan Stanley -- Analyst

Once we get the full details of the agreement, we'll see where the economics are set up and that will make sense that your investments will be in your sort of center the plate focus and there some that. As a follow-up on the fertilizer issue, obviously available concerns, but it seems like what is happening is that the high prices are different fertilizer purchases, particularly in South America and up or so, the big soy groups are timing farmers to buy less fertilizer, et cetera and do your slide showing that farmer sales or I guess it, the five-year average, which is probably OK, but they're well below last year and five-year before. So what impact of that have on your origination business if the farmers slow to sell to be playing out for you moving into next year.

Juan Luciano -- Chairman & Chief Executive Officer

Yeah, I would say, South America, it's always an issue with a little bit more factors in terms of farmer selling just because of the currency and under the distortion of that, sometimes the government bring into the market. So at this point in time, we continue to see -- we continue to see maybe relatively slow farmer selling in Argentina and that will probably continue. It's been a little bit better in Brazil recently, but it's still a relatively slow versus the accelerated pace at which they sold last year.

Vincent Andrews -- Morgan Stanley -- Analyst

Thank you. Our next question comes from Vincent Anderson from [Technical Issues]

Vincent Anderson -- Stifel Nicolaus -- Analyst

[Technical Issues] from a little bit of a different direction knowing that the agreement to be finalized, but philosophically, it sounds like you're maybe trying to prioritise giving incremental return out of your core competency and fermentation technology. But maybe limiting direct participation in the PLA market and I ask just because that is a bit more of a commodity business, then it feels like you've pushed more of your investments to a bit more.

Juan Luciano -- Chairman & Chief Executive Officer

Yeah, I think that as we said, we're trying to do -- I think as you said, we're trying to optimize our facilities and touch those facilities to demand that has more growth opportunity. In this issue, again, we don't want to go into making chemicals, that's a heavy capital intense and intensive industry and we want to make one derivative and then we serve all that capital to continue to grow in food, feed and beverages and health and wellness, that's what we're trying to do. So LG Chem is a great partner. We're very honored to have been, they have very good technology and it's a little bit like the Gevo discussion. We're going to continue to make ethanol, they will take it from there to make it, they say yes and with this partnership, we're going to make lactic, they're going to take it from there to make PLS, it's kind of the similar market.

Vincent Anderson -- Stifel Nicolaus -- Analyst

That's perfect. Thank you. And then just a quick point of clarification, if I understand the phrasing of the MoU announcement, it sounded like you're considering investing in lactic acid capacity that would maybe exceed LG needs and then you would market the remaining product yourself. Is that correct? And could you just talk briefly about the opportunity there as a stand-alone investment?

Ray Young -- Chief Financial Officer

Yeah. Listen, part of that is correct. I mean lactic has -- you can go to many opportunities, but this is relatively only the teams are looking at these that there is a lot -- there are a lot of numbers, there are a lot of things that could still change, there are a lot of discussion. So I wouldn't like to venture that March since the teams are still discussing with LG Chem by 2050, 2060, 2040, whatever that is, and they are looking back to their portfolio. They need to clean their portfolios, if you will, and one of their ways to do that is through a recycling, the other way to do it is still go in plant-based. So we are receiving a lot of inbound request on that and we're looking at outward offsets our ability to produce plant-based products and our carbon capture sequestration that provides an opportunity to make lower CI products and we are trying to maximize the opportunity for ADM on all these. So some of these things may not be that well defined because we are in the process of optimizing on that volume for the ADM shareholders. It's a great opportunity for us and we will be mindful of returns and we know into areas that we shouldn't be putting capital. The capital will be reserved for our main thrust of the strategy, which is to continue to grow in food and feed and beverage.

Vincent Anderson -- Stifel Nicolaus -- Analyst

Understood. I appreciate the added detail. I look forward to hearing more about it.

Ray Young -- Chief Financial Officer

Thank you.

Operator

Our next question comes from Eric Larson from Seaport Research Partners. Eric, your line is open.

Eric Larson -- Seaport Research Partners -- Analyst

Yeah. So Gevo and kind of the whole transaction and I know that one of your maybe not to put a bad word, what are your dislike [Technical Issues] facility of the earnings and in some of the factors your lack of ability to control some of those factors and when we talked about the dry mills in the past, one of the things was trying to reduce your earnings volatility. So in the economics of how you negotiate -- we don't know more AIF, but have you been able to -- do you think you have been able to interim agreement that actually gives you more sustainability or I guess volatility of earnings on the economics of, let's say, up going forward relative to ethanol?

Juan Luciano -- Chairman & Chief Executive Officer

Yeah. You're correct that returns are important to us, but also dampen the volatility is in the mind of everything we do. So, of course, the team is considering that I can't disclose that much at this early on, but I think what you need to also think is that over time we will try to become a minority partner and some of the objective goals, this is to deconsolidate and take all those assets out of our participation. So, to a certain degree, we are acting [Technical Issues] nurse long term of this. That's why I talked before about strategic partners of financial power. I think we're going to be able to deconsolidate. We are going to be able to monetize some [Technical Issues]. If there is some upside to that, hopefully participate in all that. But you're correct, the objective [Technical Issues] participating things that aren't to volatility, but actually the dumpen volatility and we've been very consistent in that over the last 10 years.

Eric Larson -- Seaport Research Partners -- Analyst

Okay, a lot. So when you look at the size of your dry mill investments, those are relatively new assets. But I guess they're probably eight to 10 years already, so you probably depreciated them pretty significantly already [Technical Issues] that the JV putting those assets in there or would you expect to see you maybe a modest capital return as part of that JV agreement as well?

Juan Luciano -- Chairman & Chief Executive Officer

That we landed in this is that the valuation of our assets. I mean it's better than the alternative that we have. So,we are pleased with the value of which we are contributing these two assets. We don't need or we don't plan to have any capex to all these two plants. These two plants will be contributed as such, and they will operate as I'd say that starts then the joint venture or Gevo may put money for finishing of these and to convert it into a -- through their technology. But our participation stops in the contribution of these two dry mills [Indecipherable].

Eric Larson -- Seaport Research Partners -- Analyst

Okay, perfect. Thank you. One, I mean I know the right of time, so I'll I'll leave my questions at that time. Thanks everybody.

Juan Luciano -- Chairman & Chief Executive Officer

Thank you, Eric.

Operator

Our next question is from Adam Samuelson from Goldman Sachs. Adam, your line is open.

Adam Samuelson -- Goldman Sachs -- Analyst

Yes, thank you. Good morning, everyone.

Juan Luciano -- Chairman & Chief Executive Officer

Good morning, Adam.

Adam Samuelson -- Goldman Sachs -- Analyst

All right. So what a lot of ground been covered, so trying to make this quick. On the [Technical Issues] you just maybe clarify just sort of the gating factors of what you'd be looking for on the regulatory side to really move ahead here obviously SAF doesn't participate today in the RFS harvest for California programs. So what would you want to see in terms of federal or state action on a SAF before you really fully committed going ahead?

Juan Luciano -- Chairman & Chief Executive Officer

Yeah. Listen, we have experience in both the U.S. and the European Union, a strong desire to make this a reality. There is not another efficient way to cannibalize the airlines industry, the aviation industry. Of course, only short haul you can put the battery in a plane, long haul is something like this. So we expect the government to be a partner to a certain degree in creating some of these markets. Some of those things that we are too early for me to disclose, but there are commitments both the U.S. government and the European Union to create the market for that in the 60 billion gallons type of size. So they're going to be some help into that, but that's probably to the extent that I can talk about a good way.

Adam Samuelson -- Goldman Sachs -- Analyst

Okay and then just quickly on the balance sheet, maybe this is for Ray. At the end of the quarter, net debt to EBITDA was up two times. You haven't bought back any stock this year. Just help us think about -- how we think about stock buyback as part of the capital allocation that's going forward?

Ray Young -- Chief Financial Officer

I think that we've been monitoring commodity prices very careful and when you look at our operating working capital right now, it's still $2 billion higher than we were last year. So as we think about commodity prices next year, assuming you have a strong South American crop. You have a normal crop in United States. We see commodity prices coming off again. After we've kind of funded some of the bolt-on acquisitions that we've talked about, I expect our balance sheet to be pretty strong. And so there we can probably start looking back at return of capital that we've looked like in the past. So I think a lot of it is a function of funding the investments that we talked about. But importantly, making sure that the working capital environment reverts back to normalized levels, which I think I sense, assuming a normal South American crop, a normal U.S. crop next year. I see opportunities to look at return of capital.

Adam Samuelson -- Goldman Sachs -- Analyst

Okay, all right, I'll leave it there. Thanks so much.

Ray Young -- Chief Financial Officer

Thank you, Adam.

Operator

This now concludes our Q&A session. I will now turn the call back to Mr. Luthar conclude.

Vikram Luthar -- Senior Vice President, Head of Investor Relations & Chief Financial Officer of Nutrition Business

Thank you. As Juan mentioned, he, Ray and other ADM leaders will be headlining our December 10 Global Investor Day. We look forward to talking in more detail about our strong growth trajectory and why we are so optimistic about the opportunities ahead. In the meantime, as always, feel free to follow up with me if you have any other questions. Have a good day and thanks for your time and interest in ADM.

Operator

[Operator Closing Remarks]

Duration: 68 minutes

Call participants:

Juan Luciano -- Chairman & Chief Executive Officer

Ray Young -- Chief Financial Officer

Vikram Luthar -- Senior Vice President, Head of Investor Relations & Chief Financial Officer of Nutrition Business

Ben Bienvenu -- Stephens -- Analyst

Luke Washer -- Bank of America -- Analyst

Ken Zaslow -- Bank of Montreal -- Analyst

Michael Piken -- Cleveland Research -- Analyst

Tom Simonitsch -- JP Morgan -- Analyst

Ben Theurer -- Barclays -- Analyst

Robert Moskow -- Credit Suisse -- Analyst

Vincent Andrews -- Morgan Stanley -- Analyst

Vincent Anderson -- Stifel Nicolaus -- Analyst

Eric Larson -- Seaport Research Partners -- Analyst

Adam Samuelson -- Goldman Sachs -- Analyst

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