Andersons Inc
NASDAQ:ANDE
Earnings Call Analysis
Q4-2023 Analysis
Andersons Inc
The Andersons closed the year 2023 with robust performance, marking the third consecutive year of strong earnings, supported mainly by their trade and renewables segments. The renewables segment alone achieved a remarkable adjusted earnings record for Q4. Despite a year that began with expectations of reduced earnings compared to 2022, the company's operating achievements and favorable margin conditions in the renewables business allowed it to narrow the gap significantly, ending with $405 million in adjusted EBITDA, only slightly trailing the previous year's record.
In terms of financials, the fourth quarter saw a substantial over 25% increase in gross profit, amounting to $218 million, and this momentum was carried forward with an annual gross profit increment of 9% to $745 million. Adjusted net income also soared, hitting $55 million, or $1.59 per diluted share, presenting a significant leap from $34 million the year prior. Strong operational cash flow underscored the company's liquidity, with Q4 operations generating $122 million, and an end-of-year cash position of $644 million outpacing total debt.
Operational highlights for the fourth quarter include remarkable performance in the trade business, with benefits realized from Eastern grain assets as well as notable contributions from recent pet food ingredient acquisitions. The renewables front witnessed record ethanol production from all its plants, improving both yield and crush margins. Feedstock and feed ingredient merchandising for renewable diesel saw a dramatic 60% sales increase, underscoring the segment's revenue strength. Conversely, Nutrient and Industrial managed to edge up their earnings, although they faced challenges with reduced consumer demand affecting some product lines.
As investors look towards 2024, The Andersons' healthy cash reserves and low debt-to-EBITDA ratio of 1.5x provide confidence in the company's ability to sustain its growth trajectory and successfully fund future strategic and financial investment endeavors. Though specific 2024 guidance isn't provided in the document, with a track record of effectively navigating market challenges and capitalizing on opportunities, The Andersons appear well-positioned to maintain their growth and profitability in the forthcoming year.
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Good morning, ladies and gentlemen. Welcome to the Andersons 2023 Fourth Quarter Earnings Conference Call. My name is Rocco, and I will be your coordinator for today. [Operator Instructions] As a reminder, today's conference is being recorded for replay purposes. I will now hand the presentation to your host for today, Mr. Mike Hoelter, Vice President, Corporate Controller and Investor Relations. Please proceed, sir.
Thanks, Rocco. Good morning, everyone, and thank you for joining us for The Andersons Fourth Quarter Earnings Call. We have provided a slide presentation that will enhance today's discussion. If you are viewing this presentation on our webcast, the slides and commentary will be in sync. This webcast is being recorded, and the recording and supporting slides will be made available on the Investors page of our website at andersonsinc.com shortly.
Please direct your attention to the disclosure statement on Slide 2 of the presentation as well as the disclaimers in the press release related to forward-looking statements. Certain information discussed today constitutes forward-looking statements that reflect the company's current views with respect to future events, financial performance and industry conditions.
These forward-looking statements are subject to various risks and uncertainties. Actual results could differ materially as a result of many factors, which are described in the company's reports on file with the SEC. We encourage you to review these factors. This presentation and today's prepared remarks contain non-GAAP financial measures. Reconciliations of non-GAAP measures to the most directly comparable GAAP financial measures are included within the appendix of this presentation.
As always, on the call with me today are Pat Bowe, President and Chief Executive Officer; and Brian Valentine, Executive Vice President and Chief Financial Officer. We are also pleased to have Bill Krueger, Chief Operating Officer, joining our call this quarter. After our prepared remarks, we will be happy to take your questions. I will now turn the call over to Pat.
Thanks, Mike. Good morning, everyone. Thank you for joining our call today to discuss our fourth quarter results and our initial outlook for 2024. First, as Mike mentioned, we're pleased to welcome Bill Krueger, Chief Operating Officer to the call. As many of you know, Bill brings over 30 years of ag commodity experience. He was CEO of Lansing Trade Group at the time of the acquisition in 2019 and was President of our Trade and Renewables segments prior to assuming the COO role last year.
We look forward to him sharing his thoughts during the Q&A session later. Record fourth quarter results led to a third consecutive year of very strong earnings. Both trade and renewables contributed significantly to the quarter with renewables setting a new adjusted Q4 earnings record, and Trade delivered another strong quarter. Nutrient and industrial results were up slightly compared to last year on an adjusted basis.
We ended 2023 with adjusted pretax income of $159 million, which was our second best year ever. Adjusted EBITDA ended the year at $405 million just behind the 2022 record adjusted EBITDA. Earlier in the year, we anticipated a greater year-over-year reduction from 2022 but we were able to make up some of the shortfall through our operating performance and a strong margin environment in our renewables business.
The trade business posted a very strong fourth quarter, with enhanced performance in our Eastern grain assets. These results included basis improvement after a later harvest and income earned on drying wet grain received from farmers. Recent acquisitions in the pet food ingredient space made positive bottom line contributions. Our Renewables business set a new fourth quarter adjusted earnings record. This was due to a combination of record total production from our 4 plants, and improvement in ethanol yield and much improved board crush margins. Our low carbon-intensive renewable diesel feedstock and feed ingredient merchandising product lines also improved.
Nutrient and Industrial improved slightly over the fourth quarter of last year on an adjusted basis on higher volumes and lower expenses. Agriculture product lines led the gross profit improvement. Manufactured product lines continue to be impacted by reduced consumer demand. Overall, I'm thrilled with the third consecutive year of very strong results. I'm also very proud of the team and how they optimize performance in a period of positive ag fundamentals. I'm now going to turn things over to Brian to cover some of our key financial information. When he's finished, I'll be back to discuss our early outlook for 2024. Brian?
Thanks, Pat, and good morning, everyone. We're now turning to our fourth quarter results on Slide #5. In the fourth quarter of 2023, the company reported net income from continuing operations attributable to the Andersons of $51 million or $1.49 per diluted share and adjusted net income of $55 million or $1.59 per diluted share. This compares to adjusted net income of $34 million or $0.98 per diluted share in the fourth quarter of 2022.
Overall, fourth quarter gross profit of $218 million was up more than 25% compared to $170 million in 2022. Both trade and renewables showed increases, partially offset by Nutrient and Industrial. For the full year, gross profit of $745 million increased 9% from $684 million in 2022. Adjusted EBITDA for the fourth quarter was $135 million, up more than $30 million compared to $104 million in the fourth quarter of 2022. Full year adjusted EBITDA was $405 million, just below the $412 million we achieved in 2022.
We recorded taxes for the quarter at a 15% effective tax rate and for the full year at 22%. Our effective tax rate varies each quarter based primarily on the amount of income attributable to noncontrolling interests. Now let's move to Slide 6 to review our cash flows and liquidity. We generated fourth quarter cash flow from operations before working capital changes of $122 million in 2023 compared to $90 million in 2022.
Full year cash flow of $330 million increased $15 million year-over-year. This strong cash flow generation and our continued focus on working capital management, combined with lower commodity prices resulted in negligible short-term borrowings at year-end. We ended the year with cash of $644 million, which was in excess of our total debt. Next, let's turn to Slide 7 to review our capital spending and long-term debt.
We continue to take a disciplined, responsible approach to capital spending and investments which were in line with our expectations at $152 million for the year. Our long-term debt-to-EBITDA ratio is 1.5x, still well below our stated target of less than 2.5x. We continue to evaluate growth projects and acquisitions and have a strong balance sheet that will support those investments that meet our strategic and financial criteria.
Now we'll move on to a review of each of our 3 segments, beginning with trade on Slide 8. Trade reported fourth quarter pretax income of $44 million and adjusted pretax income of $47 million compared to adjusted pretax income of $52 million in the same period of 2022. Our grain assets had a good fourth quarter with strong elevation margins and drying income from a wet corn harvest.
The premium ingredients business had a significant improvement from the prior year, including good results from recent capital investments and our recent acquisitions of Bridge Agri and ACJ International. Our merchandising portfolio delivered solid results with the mix of market challenges and opportunities across the commodities and geographies in which we merchandise. Challenges include ongoing geopolitical impacts and general weakness in the Middle East and North Africa region.
As expected, we were able to resolve substantially all of the remaining Egyptian currency issues during the fourth quarter. Trade's adjusted EBITDA for the quarter was $62 million compared to adjusted EBITDA of $72 million in the fourth quarter of 2022. Adjusted EBITDA for the full year was $155 million in 2023 compared to $199 million in 2022. Moving to Slide 9. Renewables generated record fourth quarter pretax income attributable to the company of $33 million compared to $13 million in 2022. Outstanding operating performance in our 4 ethanol plants resulted in record ethanol production and improved yields in a strong crush margin environment.
Improved renewable diesel feedstock and feed ingredient merchandising volumes also added to earnings. For the full year, our team sold approximately 1.3 billion pounds of renewable diesel feedstocks, an increase of 60% when compared to 2022. Renewables had EBITDA of $73 million in the fourth quarter of 2023, more than double when compared to $36 million in the fourth quarter of 2022.
For the full year, renewables generated adjusted EBITDA of $230 million in 2023, up $50 million compared to $180 million in 2022. Turning to Slide #10. The Nutrient and Industrial business reported fourth quarter adjusted pretax income of $2 million, which was a slight increase from the fourth quarter of 2022. Agriculture product sales volume increased approximately 3% in the quarter with comparable per ton margins. Manufactured products had improved results in our turf business, but continued to experience lower demand in the contract manufacturing business.
Results also include a $2 million charge relating to a standstill agreement for an acquisition that we elected not to pursue. Nutrient & Industrial's adjusted EBITDA for the quarter was $11 million, just above the fourth quarter of 2022. For the full year, Nutrient and Industrial recorded EBITDA of $62 million, a decline of $11 million from 2022's record performance. And with that, I'll turn things back over to Pat for some comments about our early 2024 outlook.
Thanks, Brian. Coming off another strong year, we remain optimistic about our growth prospects, but acknowledge a shift in the ag fundamentals as global supply has replenished the low stocks of the last few years and commodity prices have declined. Over these 3 strong years, we've made investments in our core assets, as well as successfully completing several small bolt-on acquisitions in key product lines.
We've also grown organically through new merchandising [ desks ], focusing on new commodities and geographies with expected growth. Now as we've seen a reduction in commodity prices, our teams are prepared to meet these new fundamentals by leveraging our balanced portfolio of assets and merchandising product lines. Our trade business outlook remains positive but is likely to have a slower start to the year as farmers have been reluctant to make forward sales on lower market prices.
In addition, expectations for higher wheat storage income have faded given the large export purchases China made in the fourth quarter. With our strong North American asset network, we are well positioned to handle grain when it's brought to market and earn space income. We expect some shifts in the mix of U.S. crops for 2024 but still anticipate significant quantities of corn in our key dry areas. Our mix of assets and merchandising should continue to provide us with opportunities for handling large grain harvest as well as opportunistic commodity merchandising.
We have continued to grow our premium ingredients business and expect it to become a larger component of the overall Trade segment. Seasonally weak demand has reduced ethanol crush margins into the first quarter as is typical for our Renewables segment. We believe that industry maintenance shutdowns and spring driving miles may positively influence crush margins beginning in the second quarter. Weaker corn prices are expected to reduce feed values.
We should acknowledge that the industry's ethanol plants continue to age, leading to longer shutdowns and lower plant efficiencies. But our continued commitment to maintaining our plants should set our assets apart. We continue to make investments in our plants to improve their efficiency and reliability as well as to improve both the quality and yield of distillers corn oil.
A low carbon-intensive input to the renewable diesel industry. We're also exploring a number of investments that will help to lower the carbon intensity of our ethanol production allowing us to participate in future sustainable aviation fuel initiatives. This includes exploring carbon sequestration opportunities for our 3 Eastern plants where the geology is favorable and additional combined heat and power generation to run our plants more efficiently. Finally, we expect to continue to grow our renewable diesel feedstock merchandising through offtake and supply agreements with third parties.
Even with an expected reduction in farmer income, we continue to anticipate solid demand for the fertilizers and specialty liquids that we supply in our Nutrient and Industrial segment. Our fertilizer and related product offerings are critical to maximizing production for farmers in the areas we serve and we believe that the current grain prices will still support application of fertilizers and specialty crop inputs.
As always, weather in the planting season will impact timing and our margin opportunity, but we continue to have good supplier support as we sell through our own retail farm centers as well as third parties. In our turf product lines, we are taking steps to improve our operations and continue to look for further opportunities in this space. We continue to explore North American agricultural growth opportunities.
I've highlighted a number of growth areas that we're exploring in each of our 3 segments, and we'll continue to remain disciplined in our approach. As a reminder, in late 2017, we established an EBITDA goal of $300 million by 2020, which was approximately double our 2017 results. We exceeded this goal on a run rate basis and then increased our EBITDA target to $350 million to $375 million by 2023, which we exceeded each of the last 2 years.
This growth was only possible through the focus on strategy, a mix of organic and acquisition growth and our team's hard work and successful execution. We remain focused on achieving our 2025 run rate EBITDA target of $475 million, which will be reliant on both internal growth and the successful completion of acquisitions.
We'll continue to make responsible decisions that benefit our customers and maximize shareholder value while executing our growth strategy. And now we'll be happy to take your questions.
[Operator Instructions] Today's first question comes from Ben Bienvenu with Stephens Inc.
Brian, my first question is for you. Just as it relates to capital spending, what are you expecting in terms of capital expenditures for 2024? And what portion of that is maintenance CapEx versus growth CapEx?
Sure. Yes. Thanks, Ben, I would say for 2024, we're targeting something in the range of $150 million to $175 million, and it would probably be call it, an equal balance between maintenance and growth CapEx is how I'd model it. And that does not include M&A. So that would be just our growth and maintenance capital.
Okay. Great. Recognizing that there is seasonality to the balance sheet, you're in a net cash position at the conclusion of this year, which is pretty remarkable. The business seems to be performing really well, notwithstanding that the shifts in the ag cycle that you alluded to. The stock is trading at 6x the next 12 months consensus EBITDA estimate, that's an exceptionally low valuation on the business.
How do you think about the rank ordering of why not buying back stock versus having dry powder to pursue acquisitions, it sounds like you have the flexibility to do all of it. So why not be more emphatic in your repurchase activity of shares given the valuation where it is.
Yes, Ben, that's a fair question. And I think from our perspective, we have a robust pipeline of potential M&A projects and other growth projects that we're looking at that are in various stages of completion. And I think as we look at it, we're -- we're thinking of it from a, call it, a balanced approach through investments in growth, but also potential returns to shareholders. The other thing I would say is, and I'm sure you're aware of this, we do tend to have -- we have a few hundred million dollars that goes out the door in early January for things like farmer hold pays and deferrals, deferred pay.
And so I would say we're going to continue to take a balanced approach and try to make sure we're doing what is in the best interest of all stakeholders and shareholders.
Maybe I'll add on to that, Ben, and very good points. I think the thing is let's just look back at this last year, we completed 4 bolt-on acquisitions albeit smaller, 2 were in the Pet ingredients segment. And we've also invested in our food, cohorted in our food ingredients business. as well as doing improvements in our ethanol plants. So those are all to structure our business to make it stronger in the long run. And those really don't -- aren't dependent on ag cycle or particular export moves, et cetera.
So I would like to think of it, we have 50-plus profit centers in this kind of broad portfolio in North American ag. And that's about serving our customers, right? So that whether it be food, feed or fuel. On food, whether it's for oatmeal production or corn for chip production or pet food, and then in our big feed customers, cattle, swine, poultry, those are critical customers that are very consistent in North America.
And then, of course, in the fuel industry with ethanol and now RD feedstocks, we're positioned to really service those customers, and that's where we are targeting our investments and I think it's important now to be really well poised with a strong balance sheet to be able to invest for the long term, especially as we look to make our ethanol plants lower CI. So I think we're in a really good position to invest in these key verticals that can lead to long-term growth for the company.
Okay. Very good. Makes perfect sense. Last question for me. Maybe just panning out a bit and Pat, you touched on this a little bit, I think, was a little bit more focus to the near term. But can you offer us your state of the union on how you're seeing the ag cycle play out in 2024, 2025 with what you can see down the line right now? And how you think the Andersons is positioned relative to that to maximize shareholder value.
Sure. Very good points. And I'll start off, and then maybe I will turn it over to Bill, who's very close to this. So I think for us, it's important to think about, as I was mentioning earlier, how to position our business regardless of the cycle. If it's a big export period, our big high soybean crush or corn conversion to ethanol margins. I think the consistent thing for us is to make sure your assets are very strong and well positioned. We've talked about this in ethanol.
We feel our plants are very large and efficient with modern technologies. We want to continue to invest in those. And now, as we mentioned, we're looking at carbon sequestration of those 3 Eastern plants. Our Western plant would need to be a pipeline play. But our 3 Eastern plants are well suited for geology to be able to do that. That's going to be well positioned for the long term for a potential South play. So we want to make sure we invest properly to do that. And in our grain business, we've really diversified across a broad array of products, right?
So we talked about feed to different feeding of different animals in North America as well as different food ingredients. We've improved some of our food corn capability last year. So we're trying to -- those things aren't reliant, for example, on a big export market because exports have slowed in North America with Brazil really coming on strong supply in China.
So we want to position ourselves to be able to be successful, whether it's a big bold grain market or a softer grain market. So we have a big crops. We talked a couple of years ago about the need to have 2 or 3 crop cycles of good harvest to get back to a balanced S&D and that's what's happened now. We had a big South American production and then a good North American production this year. So we're set up very well now from a global balance sheet on grains.
But as you all know, this can change quickly with weather conditions changing or some geopolitical issues. So I think the bottom line, we just want to stay very well positioned and continue to deploy capital in areas of be for long-term growth. And Bill can probably update more about the macro on grain and ethanol.
Thank you, Pat. I'll just kind of add to what Pat was saying there. If you look across the entire industry, ag cycles come and go. This is going to be a really good opportunity for the Andersons to be able to collectively utilize the acquisition of Lansing, which was more focused on merchandising our historic asset footprint in the east and what we've grown in the Western Corn Belt. So I think our opportunities as we go into this stocks building mode, which is what I'm pretty sure you're referencing.
I think it's going to be one that offers opportunities to the Andersons and maybe more so than it has historically. There's a lot of things that we're looking at also. We all well documented growth of soybean crush in the U.S. across North America, if you want to include the canola. That's going to provide opportunities for companies like the Andersons. And we're really looking forward on capitalizing that. We are not in the soybean or canola crush business, but we are in the feed distribution business.
We do understand the flows of grains and greens products, and we think there's going to be opportunities around the meal. And then lastly, just to add to Pat's comment around renewables, we have been very focused the last 5 years on making sure that our ethanol plants continue to be very efficient, very focused on where we want to develop long term. We think that's a good spot to be on ethanol. We also like the renewable diesel feedstock business and our understanding of how the different co-products going into renewable diesel, have an interplay and are able to take advantage of those.
And our next question comes from Ben Klieve with Lake Street Capital Markets.
Congratulations, guys, on a really good quarter here and a great end of the year. A few questions. First of all, a follow-up to your comments on the Renewables segment and investing in carbon sequestration initiatives in advance of ethanol to jet. Can you talk about how you are considering your projects here in the context of kind of the pending news coming out of the administration for the ultimate eligibility of ethanol as a feedstock to sustainable aviation fuel.
I mean, how contingent are your initiatives on whatever comes out of the federal agencies here in the next couple of months.
I'll go ahead and take that, Ben. I'm going to assume you're referencing the rules and regulations around 45Z.
Yes.
Okay. With that assumption, there's a lot of planning that needs to go into these projects. And as an organization, we've spent the last several months working on that plan. We have a pretty good feel on what we think is going to come out of the final rulings but as we know, that is very instrumental on being able to go forward with the projects. And we're no different than any other ethanol company that's looking at opportunities. There are going to be ways that we can enhance our ethanol plants with CCX and we're focused on moving forward with those.
And to the other point that you made in referencing ethanol to jet, there really isn't any ethanol to jet without low carbon ethanol, and that's what we're really focused on is making sure that we're able to participate in that market when it happens.
Maybe I'll add on to that, Ben, just to frame it up a little bit for people's background. On our 4 plants, our 3 Eastern plants in Indiana, Ohio and Michigan, we feel have favorable geology to be able to conduct carbon sequestration. Two of those plants today, we already capture CO2 for beverage grade use. So we're prioritizing where we think we can get the quickest bang for our buck with sequestration investment and also to position ourselves long term to be very efficient on our -- making investments in our energy centers and making them lower cost as well as capture some lower CI in our combined heat and power projects.
So we've been successful with those already. We have combined heat and power capacity at our plants. We want to continue to beef that up because our strategy is basic that we think that the larger scale, highly efficient modern plants that have really good transportation economics and can have a lower CI score by sequestration will be the long-term winners, and it's just kind of that simple. So that's where we're positioned our plants to be. Our one plant in Iowa will be part of a pipeline project, whenever that would come to pass. Just like a lineup with other plants in Iowa.
So we think we're in a good position on a relative basis to competitors, and we just need to execute against that and we're doing the proper investments.
Okay. That's very helpful context from both of you there. I appreciate that. As a kind of follow-on question to this concept, but on the renewable diesel feedstock business. A 60% growth rate last year that I think you called out that's phenomenal. Can you talk about your expectations for the continued growth trajectory in that business in terms of both the market may be slowing down a little bit from capacity utilization, but also your ability to maybe take share?
Do you expect a kind of a 60% number to be sustainable going into next year? Or do you think that's going to taper a bit given those 2 kind of big picture puts and takes?
I'll start, and Bill has more expertise here that we started this trading desk for RD feedstocks at the beginning of this industry. And of course, we had our cornerstone of our own corn oil to be positioned, but we've been very successful to partner with a lot of people, both on the sell side and the buy side and really have gotten to know these markets well.
They have a really crackerjack team that's doing a great job here, and we've grown very fast. As Brian mentioned, our growth rate is well over 1 billion pounds. We set a target to be 2 billion pounds by 2025, we feel that's achievable. We've looked at acquisitions in this space. We haven't found one that fits real well with us, but we'll continue to look for opportunities especially in the lower CI feedstocks, which is in the fats and greases in used cooking oil. So we think there's opportunities for us to enhance and get bigger.
I don't know about a magic 60% growth rate target, you said, but I think it's plotting away where we can feel we can position ourselves best to service our customers. And that's what we're focused on. Bill can add some more color to that.
Yes, I would agree with Pat. There is still plenty of runway in our position, primarily low CI feedstock. I do understand your comment around some of the ebbs and flows that we've seen recently with plants with supply. But what we're more focused on is utilizing both M&A around fixed assets and continuing to increase and grow the number of supply agreements, both as offtake and as suppliers.
So yes, we think that there is still a lot of runway in that business since it's only a little over 2 years old.
Great. Very exciting. I appreciate that from both of you again. Bill, a question specific to you on merchandising, can you comment on kind of the state of the state in merchandising heading into '24, particularly in the context of corn prices just kind of trickling away here over the last couple of months.
Is your profit per bushel taking a material hit in the current environment? Or are you guys able to be kind of steady state here in the face of corn prices?
Good question. As we've talked a lot before, volatility is our friend when it comes to our true merchandising businesses. Our volumes continue to be steady, if not increasing. The approach that we've taken over the last couple of quarters is to really focus on as we see a building of stock, what stocks in the U.S. or North America, what can we do to work with our customers to come up with more value-add products.
And that's one area that we've been focusing on, not only in our premium ingredients business, but also in our traditional grain businesses as commodity prices come down, there have been more opportunities with our customer base to look at some of these value-added lines with the traditional grains. The other area that we are really experts in is North American transportation.
And those opportunities will prove more valuable when you have excess supply and a lower commodity markets, specifically grain. So yes, we won't see some of the large spikes, but we do think that the base is there with opportunities to grow that we'll be able to carry into any ag cycle.
Maybe I can add on to that, Ben. Bill made some very good comments there. If you think about some corn slid down maybe $0.40, $0.50, call it, [ 4 60 ] nearby beans have been quite a bit worse. So I mean, beans is often one of the [ fourth ] start we've seen a start of a calendar year down about [ $1.50 ] that we've seen in over 40 years. So I mean, the beans have really declined quite a bit.
The point that we like to think about it impacts our business as basis traders is really what are those domestic opportunities, as Bill talked about, on freight and working closely with our clients. And so what's changed is going from an inverse market to more of a carry market, we have some opportunities to do well in the inverse. For example, our Louisiana assets did very well in the last 2 years in an inverse being early corn to the market.
But a carry comes back to our bigger Eastern assets where we can earn storage income that we haven't seen that much over the past couple of years. So it's kind of a balanced thing for us more than it's a negative thing. So what we'd like to see, as Bill mentioned, some volatility, some freight arbitrage and opportunities to continue to work with our key clients and servicing their needs.
Very good. Well, I appreciate that from both of you. Congratulations again to you all for a great quarter. I want to get back in line.
And our next question comes from Brian Wright with ROTH MKM.
I just wanted to try and dig a little deeper to see about like what to think about as far as just the margin pressure on the ethanol business, just maybe contextualize it from a magnitude and just like -- are you saying that the ability to offset with the storage and merchandising? Is it like -- it's kind of a 1:1.
And just trying to think about like how that, how your view -- and I know it's early on in the year, but just any help to think about the puts and the takes and what the net kind of impact is.
Brian. And this is sometimes I feel like the old man of ethanol, have been around it for about 30 years is that the winter months are always difficult. And ethanol, it's one of the seasonal low margin time of the year. And this winter is no exception. The difference being our merchants did a very nice job with pre-hedging some Jan, Feb and even a little bit into March ethanol, and we had those -- the benefit of that shows up in our fourth quarter earnings because we mark-to-market those hedges.
So we don't see those in January. But we were able to -- did a nice job trading the ethanol market going into the start of the year. Again, that showed up in fourth quarter last year. Having said that, we were actually in a worse margin position on the Board at this time last year than we are this year.
So I think that we're looking forward to what the spring season will be. It's interesting. I've done some reading about people talking about how driving mileage is initially a little statistics for vacation planning, maybe the highest ever that people after COVID spent a lot of time traveling on summer vacations and spring breaks by cars. And now with airline tickets quite pricey and some challenges in some overseas locations to visit there may be a record amount of spring and summer vacation travel.
So that's kind of an interesting little tidbit. But bottom line is we see an improvement in the spring/summer driving miles and a good balance in the ethanol S&D. So we're optimistic for a good margin recovery as we head into the latter part of the year. But Bill can provide a little more detail.
Thanks, Pat. Yes, as Pat just mentioned, the start to 2024 has actually been better than the start to 2023 was. And looking at kind of the 2024 calendar year, we will see increased production. We've had a couple plants come back online. But at the same time, we're likely going to see an increase in the blend rate every year, it continues to increase, I think, with the exception of one year.
So we're expecting that trend to continue. We will see increased exports. With January off to a slow start, we're still confident that Canada specifically will continue to grow. And with ethanol being in such a steep discount to RBOB, countries that want to increase their blend rate are more than likely going to come to the U.S. with us being at such a discount to Brazil. So from our perspective, the balance sheet for ethanol really looks the same at the end of '24 as it does -- or as it did at the end of '23. So I don't know that the forecast is that pessimistic.
We just were able to see a lot of real strong opportunities throughout 2023 that we're not certainly going to repeat.
Okay. No, that's very helpful. I guess kind of a follow-up on that. Given the COT short position of managing money in corn and soybean futures, just can you talk to a little bit of like when those positions cover and historically, like how significant that can be and how the duration of those covering kind of rallies can be?
You make a very good point is this -- I don't know if it's a record, but we have very a very large short position, speculate short positions in the futures markets these days, and they've been right. They've made some good money in those positions. And when those are reversed, you'll see a bounce and the timing of that, and I think a lot of it in the fundamentals of the ag cycle will be when we get farmers in the field ready to plant.
That's when they -- the farmers make decisions on selling some corn. They haven't sold a lot early this year. So we expect to see farmers get ready for the next crop cycle to probably sell some of that and they would likely to sell on some kind of a rally. So if we get a short covering [indiscernible], that would be well received by the farm community, obviously.
But the prices are lower off the last 2-year peaks. But these are not horrible prices, right? There is still a breakeven kind of numbers in corn, given the current input costs. So this isn't a disaster year. It's just lower than we're off the peak in the last couple of years. I don't know. Bill, on the trade side, are you seeing some other fundamentals there?
No. I think, Brian, the short answer is any substantial rally with managed money coming out of their positions, I think, will be offset with farmer hedging, or farmer selling, which will mean commercial hedging.
Got it. Okay. And then I guess, lastly, if I could. Can you talk maybe about the pet food impact on the business in the quarter? Is that to a level that we can talk a little bit about from a quantitative point?
I'll take that, Brian. Yes, our pet food industry or our pet food business has continued to perform well. Much like several industries, some of the premium products are being replaced with lower cost products due to the inflation in the consumers. But one interesting opportunity, as Brian mentioned, is 2 of our acquisitions, recent acquisitions between Bridge Agri and ACJ International, both are really focused on the pet food industry.
And that's brought a welcome increase in our volume. It's also brought opportunities to our existing pet food industry that had allowed us to take advantage of the synergies that we expected out of those businesses. So in terms of continued growth and focus on the business, it is one of the key areas in our premium ingredients sectors that we are focused and honestly, looking at more growth opportunities.
And Brian, just to add a little more context, [indiscernible] on Bridge and ACG. I think we previously when we announced those, I had commented that we thought that the combination of the 2 would add incremental EBITDA of about $5 million to $10 million a year.
I would say we're on track to meet or actually probably trend a little bit higher than that.
And this concludes our question-and-answer session. I'd like to turn the conference back over to Mr. Hoelter for any closing remarks.
Thanks, Rocco. We want to thank you all for joining us this morning. Our next earnings conference call is scheduled for Wednesday, May 8, 2024 at 11 a.m. Eastern Time when we will review our first quarter results. As always, thank you for your interest in The Andersons, and we look forward to speaking with you again soon.
Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.