Unidentified Company Representative: Lower FAP prices are net benefit to Darling because of the earning power of DGD.
Brad Phillips: Yes. I mean I think that’s right. Given the relative size of DGD today and its capacity, it’s a very good hedge for the base business of Darling.
Unidentified Company Representative: Yeah. It buys 3x more fat than what we produce ultimately or that’s logistically feasible globally to it. So yes the leverage is there. But I also remind people wearing my self as Darling have that I keep 100% of any fat price increase on this side of the table. What we’re really looking for at DGD is an LCFS health and then it really has a chance to be a double win for us.
Derrick Whitfield: I completely agree. I think everything hums when LCFS prices go higher. Regarding the progress that you guys have made with your collagen peptide research and products, how should we think about the build-out of that business line or those business lines and what the RIN rate potential could be?
Unidentified Company Representative: Yeah. I mean look let me just back up a second. I think what really excites us about that is not just the progress we’ve made in developing peptide profiles. But the infrastructure that we have globally to deliver on a portfolio of value-added products. So with the acquisition of Gelnex, we essentially have access to low-cost collagen production around the world. And we have the capacity needed to develop this portfolio. So without a significant amount of additional investment, we’re in a position to do this. As the announcement said recently that we’re coming out with a product that will secrete GLP-1 into the body and have health benefits that way. We have several other products that are in the pipeline right now.
It’s hard to predict exactly when those — when we can complete that process and when we’re going to be launching. But I think we’re very confident that we’re going to have several over the next couple of years that we’re going to be able to bring to market.
Operator: The next question comes from Ryan Todd from Piper Sandler. Please go ahead.
Ryan Todd: Thanks. Maybe just a couple of follow-ups from earlier questions, I mean as we think about fat prices and how you think about the trajectory over the course of the year. I mean, the supply side in particular is hard for us to wrap our heads around because of the wide range of sources on a global basis. But is the biggest single thing that we should be looking at in terms of that price recovery over the course of the year? Is it really the ability of the North American renewable diesel industry to ramp up consumption of waste passed to the pretreatment units between now and year-end? Is that the single biggest driver on the demand side? Or are there other big things on the demand or supply side that we should be thinking about in terms of fat market recovery?
Randall Stuewe: Well, and I’ll start and then Matt and Bob can key in. I’m going to drive on my side of the table here from the global side. I mean, clearly we’ve had an abundance now are just ample crops around the world. Yeah, we’ve got a little dryness here a little dryness there. But at the end of the day, global stocks are very, very strong around the world of oil seeds. There’s a major shift in who’s crushing or processing those oil seeds underway right now. I don’t know that we’ve seen play out yet. So that’s number one. Number two is we’re seeing oil in the $80 a barrel range now. And typically history would say at those times, you start to see a lot of palm oil disappear into the system in the Asian countries. And so you saw I think yesterday or a couple of days ago, I think Malaysia, Indonesia has raised their biodiesel mandate now to 35%, and then South America from 6% to 20%.
So you’re starting to see people make the movements that are going to start to move. It doesn’t take a lot of movement to change the S&D globally of fats and oils. And then the third piece as you throw on the North American side, I mean as we were building our numbers here, if I took every one of the sell-side guys, capacity utilizations out there and what’s running, the US is going to have to import four billion pounds of fat in order to feed these machines. And clearly they’re not, so I mean as we look at this thing going forward, the global S&D has got a little bit of work to do. Ultimately with the number of oilseeds being processed in North America that’s both soy and canola you have to ask yourself what’s China going to do for fat? Are they going to buy finished product?
Are they going to buy seed? Are they going to buy more palm oil? I don’t know. I think that’s what I mean. Bob do you want to add anything.
Bob Day: I mean, Randy I think you touched on what’s most important and that’s really global demand. And in the fuel sector as you pointed out palm can go into conventional, find its way in the conventional fuel, but what I would — what we pay attention to here is what is biofuel policy? How is that shaping up as we get into 2025, 2026 and beyond? What we saw was high prices caused a lot of new supply to come to market of waste oils. So there’s a bigger opportunity for more regulation and more policy that’s going to support biofuel production. That’s really where demand needs to come from to absorb this additional supply we’ve seen on the market.
Ryan Todd: Great. Thank you. And then maybe just one on the — on your comments on SAF earlier. I mean, is it — it seems from discussions with many people that I think the expectation on the commercial side is that you’re probably looking at renewable diesel plus $1 to $2 a gallon in terms of what kind of the SAF economics looks like. Is that a fair range? Is it too early to say at this point? And I know there are some cost and yield impacts. I mean if that’s the case what sort of margin accretion are you talking about in terms of like SAF production versus RD production?
Matt Jansen: This is Matt. I would say that from a SAF margin standpoint where we have in the discussions that we’re having right now and they are going to be well within our expectations of our investment thesis and both from a volume as well as a margin standpoint. So, we — the plant has yet to turn on and we’re taking the right steps in order to get this in a place where we think it needs to be. And so, I would just say stay tuned.
Operator: The next question comes from Ben Kallo from Baird. Please go ahead.
Ben Kallo: Hi guys. Good morning. Just on the guidance and SAF tie in. Could you just talk to us about how you guys have factored in the tie-in and how much that impacts the guide. So when we do a bridge for next year, we can think about that.
Bob Day: So there is no SAF in the ’24 guidance. And the tie-in DGD three is going to do a catalyst change in Q2 and be ready for the tie-in. So, we won’t have to be shutting down our R&D facility as the SAF plant is up in. So we’re staggering that to have the DGD three line ready to go for a full run, as we tie in the SAF line. And as mentioned, we’ll be operational in Q4 on the SAF side.
Ben Kallo: Okay. On the Food segment, the one-timer, should we look as a one-timer expiration or whatever? Or is that going to carry into Q2? Or how should we think about Q2? I know that they expect to recover today in Q2, but how do we think about Q2 food volume call centers?
Randall Stuewe: Yes. I mean I think KPMG always gets mad at me when I call it a one-timer, so I can’t use that word, Ben Kallo. But — at the end of the day, you got to add back that 25 and that’s really the solid run rate of what we would say for the Food segment this year. And then next year, as Bob was alluding then hopefully we start to build a portfolio of sales on the new peptides here.
Operator: The next question comes from Heather Jones from Heather Jones Research. Please go ahead.
Heather Jones: Good morning, everyone. Just first I wanted to talk about — so Randy, you alluded to this earlier but the ARB for Chinese UCO and Brazilian tallow has closed and for Chinese UCO by pretty wide margin. So just thinking about — you’ve mentioned how these RD plants haven’t been ramping as they said they would et cetera. But given that that is closed in DGD, now US fats are cheaper, just if DGD keeps running at its normal speed, wouldn’t that result in a substantial improvement in domestic fats in the US?
Randall Stuewe: I think Matt and Bob and I are looking at each other. I mean strategically, we made a decision that we didn’t as collectively as the owner and part owner, JV owner of DGD, we felt it was important to own the world arbitrage and we’re making investments in Port Arthur to be able to unload directly there. So ultimately, we can own that because that’s important to margin management in the long term. We’ve always said the number one thing for DGD was it’s real estate that it owns and operates on the Gulf Coast and that’s both for inbound and outbound. And so the answer is, from time to time, one geography in the world would be a premium to the other. You’re watching that trend right now as the US and Canada are cheaper than imports.
And so, that should be supportive as we go forward. Now ultimately, as you’re building a portfolio of suppliers and inputs into the DGD system, you’ve got different markets around the world. meaning finished product markets that require different or you can qualify different fats for different carbon intensity. So you’re always going to be playing that arbitrage. And that’s what gave DGD the superior profitability of anybody out there today in the world. So, it will move from time to time, but I don’t see it going all domestic then a portion of it back import, because that’s just logistically impossible at the scale we are at. I don’t know, Matt, you’re deeper in that.
Matt Jansen: I would just say, just to be clear the driving decision for us in DGD is margin. And it senses to buy the cheapest available feedstock all things considered including the CI score. So to your question in terms of lower domestic price, that’s exactly where DGD is focusing its origination efforts right now.
Heather Jones: Okay. Thank you. And then my follow-up is on Ward. So Randy, I think you mentioned on the Q4 call, something about dumping like 30-some million pounds in a landfill. It’s been down for almost a year and a half. I mean can you give us — I mean dumping in a landfill is pretty expensive and obviously not getting true finished product pricing. So just wondering if you could give us a sense of what — what’s the magnitude of drag that spindling out business just so we can give us as how that by itself could help the remainder of the year.
Brad Phillips: I’ll try to answer that Heather. So the — at the end of the day when that plant went down, I mean we had a series of supply contracts and a series of customers that we’re relying on the Ward plant to operate in order to process their volume. And so when that plant went down then there was all of a sudden this volume that had to find a place to be processed. And so, we did a massive game of shifting around in terms of trying to put as much of that volume that into our other plants. But as a result, there was still some product that resulted in — as Bob was talking about, the next best alternative, which was a landfill. And so in terms of quantifying that, I don’t have that specific number for you but what I can say, as that plant is up and running now, and our Eastern Shore plants are essentially at this point running on all 12 cylinders, and so as of April 1.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Randy Stuewe for closing remarks.
Randall Stuewe: Hey everyone, appreciate all the questions. As always, if you have additional questions, reach out to Suann. Stay safe. Have a great day, and I’ll turn it back over to the operator to conclude our call. Thank you.
Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
