Ingredion Incorporated (NYSE:INGR) Q3 2019 Earnings Conference Call - Final Transcript
Oct 31, 2019 • 08:00 am ET
Thank you. [Operator instructions] Your first question comes from the line of Robert Moskow with Credit Suisse.
Hi. Thank you. Jim, and Jim, I know that you were in the progress earlier this year to try to educate customers about the impact of falling values for corn byproducts and what that might mean for pricing going forward on corn sweeteners. And I just want to know if you can give us an update on how that's being received? And whether you think that will help you take the pricing you need? And then secondly, does it open up any kind of a risk that byproduct values are pretty volatile? If they start rising again, does it open the risk that those customers might demand that pricing to be revoked, I guess? Thanks.
Okay. Let me take it first, and then I'll turn it over to Jim Gray. So thanks, Rob, for the question. As we look ahead to 2020, to your point, we continue to face three factors impacting our net corn costs. One is certainly the uncertainty of the crop size leading to higher gross cost of corn, co-product values which remain at a structurally lower level than it has been historically, and also the higher cost to move corn, which is reflected higher basis costs. And all three of those factors will certainly be important considerations in our pricing actions.
And specifically, as it relates to the structurally lower corn co-product recoveries. We are carefully looking at all of our customers and analyzing our pricing requirements as we go into contracting for next year and where we need to make adjustments with how those pricing contracts are structured. And so we're looking to optimize against all three components of the corn cost increase. But in particularly, what we're doing is educating customers and working with customers to share in the cost increase of something that has structurally impacted the entire industry. And so I think whatever model we come up with is meant to take into account what might happen in the future as well. So hopefully, that answers your question.
Jim, do you want to add anything in addition?
No. I mean I would only add that I think when we were heading into '19, having experienced some depressed values for corn gluten meal and for corn oil, we viewed it really as something that was more temporal, and we've continued to experience those lower co-product values throughout all of 2019. And so I think when we're having the conversation with the customers who understand corn and the corn structure quite well, they're facing that choice, which is we need to be able to figure out how we can't just take a one-sided impact to our cost of corn and that would differ traditionally what we have done in our business.
And so very much to what Jim said, and we are exploring different options with customers in order to make sure that as we go forward as