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Corn Products International Inc. (CPO)

Q2 2007 Earnings Call

July 24, 2007, 08:30 AM ET

Executives

David A. Prichard - Director, IR

Cheryl K. Beebe - VP and CFO

Samuel C. Scott, III - Chairman, President, and CEO

Analysts

David Driscoll - Citigroup

Heather Jones - BB&T Capital Markets

Vincent Andrews - Morgan Stanley

Christine Mccracken - Cleveland Research Company

Christina McLaughn - Deutsche Bank

Kenneth Zaslow - BMO Capital Markets

Ann Gurkin - Davenport & Company

Pablo Zuanic - JP Morgan

Presentation

Operator

Please standby, we are about to begin. Good morning everyone and welcome to the Corn Products 2007 Second Quarter Earnings Call. This call is being recorded.

At this time, I will turn the call over to the Director of Investor Relations, Mr. David Prichard. Please go ahead sir.

David A. Prichard - Director, Investor Relations

Thank you operator and good morning everyone. Welcome to Corn Products International's conference call to discuss our 2007 second quarter financial results released earlier today.

I am Dave Prichard, Director of Investor Relations for Corn Products International. Joining me today to lead the call are Sam Scott, our Chairman, President, and Chief Executive Officer; and Cheryl Beebe, our VP, and Chief Financial Officer. This is an open conference call, simultaneously broadcast on our website at www.cornproducts.com. The charts for our presentation this morning can be viewed and downloaded from our website, and they are always available about 60 minutes ahead of our conference calls. Those of you using the website broadcast mode for this conference call are in listen-only mode. Sam Scott and Cheryl Beebe will deliver this morning's presentations and they will indicate as they move from chart-to-chart. So, those of you using our slides from the website can easily follow along through the presentations.

Now, I have just shifted to chart two, which is our agenda. Cheryl Beebe will present the financials for the second and first half with appropriate analysis and flavor. Following that, Sam Scott will discuss our 2007 outlook and pathway strategy growth initiatives before we move to your questions.

I have now shifted to chart three, which is our forward-looking statement. Our comments within this presentation may contain forward-looking statements. Actual results could differ materially from those predicted in those forward-looking statements, and Corn Products International is under no obligation to update them in the future as or if circumstances change. Additional information concerning factors that could cause actual results to differ materially from those discussed during today's conference call or in this morning's earning press release can be found in the Company's most recently filed annual report on Form 10-K and reports on Forms 10-Q and 8-K.

Finally, statistical and financial information and reconciliations of non-GAAP numbers from this presentation are also available on our website at www.cornproducts.com. And as you will see, are included as an appendix to our slide presentation.

With that, I am now pleased to turn the conference call over to our Vice President and Chief Financial Officer, Cheryl Beebe. Cheryl?

Cheryl K. Beebe - Vice President and Chief Financial Officer

Thank you, Dave. Good morning everyone. We are pleased to report another solid quarter of earnings growth. The diluted earnings per share for the quarter is $0.66 versus $0.40 last year for a 65% improvement. Combined with the first quarter earnings, this brings to $1.32 for the six months ended June 30, 2007. From the press release you can see we have revised our guidance upward on either side of the range by $0.25. This incorporates a stronger second quarter results and the improved outlook for the remainder of the year.

I am starting with chart five, the summary income statement for the quarter ended June 30, 2007. Net sales reached $857 million, up 33% or $212 million versus the same period last year. As we will see in on the next chart all three regional businesses contributed to the net sales increase. About $30 million of the net sales growth in the quarter is from acquisitions. Growth profit dollars are up 49% or $51 million versus last year. Growth profit margins are 18.1% versus 16.2% lat year. Strong pricing actions across the three regions offset the significantly increase in net corn cost and the small increase in total energy cost versus the same period last year. Again, this quarter, we continue to see margin recovery in North and South America.

Operating expense increased 31% or about $16 million. The increase includes higher variable performance compensation. Operating expenses related to the acquisition and the impact from foreign… stronger foreign currencies. Operating expenses as a percent of net sales for this quarter was approximately 7.6%, which is equal to lat year. We are expecting operating expenses to remain in the range of $60 million to $65 million per quarter for the remainder of the year.

Operating income grew 59%, reaching $91 million versus $70… $57 million last year. The operating income margin for the quarter was 10.6% versus 8.8% last year. Net financing costs for the quarter were $13 million versus $8 million last year. The higher net financing costs are attributable to the increased and financing cost associated with refinancing of the matured July 2007 bond, the reduction in capitalized interest of approximately $1.7 million, higher FX expenses and acquisition financing cost in Brazil.

As a reminder, the Company issued $300 million worth of bonds in April of this year, an anticipation of repaying the 2007 maturing bonds. The carrying cost in the quarter was about $700,000. Financing cost for the reminder of the year should be slightly lower than the current run rate. The tax rate for the quarter is 32.8% versus the 37% last year, and reflects the earnings mix. The quarterly rate is slightly below the 34% effective tax rate anticipated for the year. Net income grew 68% reaching $51 million versus $30 million last year. Weighted average diluted common shares in the quarter were 76.6 million versus 75.3 million last year. No shares were repurchased during the quarter.

Turning to chart six. We see the net sales growth is coming from North America. North America’s net sales grew 34% or $136 million representing about 64% of the Company’s net sales growth in the quarter. South America’s net sales grew 40% or $62 million and Asia/Africa’s net sales growth was 15%.

Chart seven is the net sales variance analysis. Total Company net sales were driven by the strong pricing actions. Price product mix accounts for about 79% of the net sales increase in the quarter. Volume contributed about $20 million and stronger foreign currency is contributed about $24 million. On a regional basis, North America’s net sales growth of 34.1% is made up of a 32.3% increase and price product mix followed by 1.2% change in volume and 0.6% improvement from the stronger Canadian Dollar.

South America’s growth of 40.4% is comprised of a 20.5% improvement in price product mix, 11.9% from the stronger Brazilian and Columbian currencies, and 8% from volume growth. Asia/Africa’s 14.7% net sales growth was led by an 8.1% increase in price product mix, 3.4% from the stronger Korean Won and Thai Baht, and 3.2% in volume growth.

Moving on to operating income by geographic segments, chart eight. Again, we see North America driving the income performance. North America’s operating income increased 85% or $31 million. The operating income margin was 12.8%. South America’s operating income was up 56% or $10 million. Last year’s operating income in South America was the lowest in 2006, and represented the bottom of the cycle. The operating income margin last year in South America was approximately 10.7% versus this year’s 11.9%.

Asia/Africa’s operating income dropped 22% or $3 million. Excluding the South Korean business, the division’s operating income would have been up in the double digit range, driven by the strong operating results in Pakistan. While the South Korean business was able to raise prices versus last year, the increase was not enough to cover the significantly higher net corn cost. We expect this to be the weakest operating income quarter for Asia/Africa this year.

Turning to chart nine, the estimated source of diluted earnings per share received the changes from operations contributed 28%, $0.24 from margins, $0.02 from both volume and currency. Non-operating charges accounted for a negative $0.02. Financing cost negative $0.04, lower effective tax rate was a positive $0.04, both minority interest and shares outstanding cost a negative $0.01 each.

Moving on to the six months result, chart 10. Net sales are up $1.6 billion or up 29% to $1.6 billion from last year’s $1.3 billion. Gross profit increased 53% to reach $302 million or an increase of $105 million. Gross profit margins are 18.6% versus 15.7% last year. Operating expenses are up 26% or $26 million, again, from higher variable performance compensation, operating expense for acquisitions, and stronger foreign currencies impacting the translation.

Chart 11 is the cash flow highlights for the quarter. Contributing to the positive growth from operations is the strong growth in net income. During the quarter, we invested $69 million in working capital to support this strong growth. The majority of the increase is due to the higher account receivable from strong sales, raw material inventory increased primarily due to a combination of price and volume. We invested approximately $37 million in fixed assets. Cash provided by financing activities was $335 million. We issue 300 million worth of long-term bonds and anticipation of paying off the $255 million worth bonds maturing on July 15, 2007. Dividend paid amounted to $8 million and the issuance of common stock amounted to $10 million

The last financial chart, slide 12 is the key metrics for June 30, 2007. Debt to total capital is 35.4% versus 26.9% last year, reflecting the additional $300 million of new debt. We have a pro forma chart attached to the press release, which shows the debt to capitalization ratio after the repayment of the $255 million worth of bonds at 28.1%. The debt to EBITDA on a trailing 12 month basis is 2.1 times versus 1.7 times last year and is also impacted by the $300 million of new debt. Operating working capital as a percent of net sales was 11.3% versus 9.8% last year and reflects the investment made to support the business growth. Net debt is $497 million versus $468 million last year.

That wraps up the financial charts. So, I will pass to the… over to Sam for the outlook. Sam?

Samuel C. Scott, III - Chairman, President, and Chief Executive Officer

Thanks Cheryl and good morning to everyone. I will discuss our revised 2007 outlook and growth initiatives before taking your questions. First, the brief word about our second quarter. It’s clearly gratifying to report a second consecutive quarter of very strong results. We are now midway through what is shaping up to be a very impressive 2007 for Corn Products given sales, EPS, and margin strength we reported for the first half.

Now to chart 13, our 2007 outlook. Base on our better than expected second quarter and improved outlook for the second half of the year, we are pleased to raise our earnings per share growth expectations of 2007 to $2.35 to $2.55 or 44% to 56% increase versus a record $1.63 in 2006. Our prior 2007 guidance was $2.10 to $2.30 or 29% to 41% increase in earnings per share. Our improved outlook is principally due to the very strong first half performance by our North and South American regions, which achieved 111% and 40% increase is respectively in operating income.

We expect the healthy second half of the year. Our full year EPS guidance calls for the last six months of 2007 to be in the range of $1.3 to $1.23 versus $0.92 in the second half of 2006, which will be a strong double digit increase out from 12% to 34%. Our higher guidance takes into account the key upside practice and downside risks that remain in 2007 in our domestic and international businesses. Our business models in North America and internationally are performing well in today’s climate of a more volatile corn price. As I said before, we are working hard to mange the risk and global corn prices. And we continue to believe that our business model should able us to operate successfully in this relatively new crop price environment. We need to have a business that allows us to pass through rising corn cost and other cost in a reasonable period of time. Tight corn refining utilization rates in North America remains very important and that together with the benefit of our strong international market position… positions us well.

Our expected 2007 earnings performance… EPS performance means we should deliver four year compounded annual growth of EPS of between 22% and 24.4%. This is about double the low teens EPS CAGR goal we had originally set for the five year period of 2003 to 2008. Most importantly for shareholder value creation we expect to exceed ROCE or cap return on capital employed target of 8.5% in 2007. Given our net sales of $1.6 billion in the first half, we also expect to surpass $3 billion in annual revenue in 2007.

Moving to chart 14 our 2007 outlook by region. It’s clear that North American is providing the momentum for earnings and margin growth in 2007 that we did in 2006. All three country businesses in North America are contributing strongly. We reiterate our expectation for higher operating income in 2007 to South America, primarily from the turnaround in Brazil in the second half ’06 as well as another solid performance more Andean region led by Columbia. Improved pricing is enabling South… the Southern Corn, essentially Argentina to work through the challenge of higher corn and energy cost with minimal impact.

Finally, now expect… finally, we now expect our Asia/African region to be essentially flat of the operating income line for ’07. This is a slight revision from the modest growth we have previously expected in the region for this year. While our net sales should improve at a healthily double digit, the flat profitability is due lower operating results we see in South Korea. This stems from inability so far to pass through all of the higher con cost with better pricing, along with the ongoing stagnation of the economy in that region. Weakness in South Korea, however, is masking profit growth elsewhere in Asia/Africa. Despite an expected drop in the South Korean operating income from ’07 versus ’06, profitability in the rest of the region is expected to expand at a double digit rate. We continue to see sales and profit growth in Pakistan, a business whose performance we are very pleased with and also improvements in Thailand, as we build our position in expanding the Asian region.

A final comment on South Korea. Despite its lower operating income, this is a business we value. It has always exceeded its cost of capital, generated strong cash flows, and remains a solid foundation for our Asian expansion strategy.

Turning to slide 15. I will conclude with a few comments on our pathway strategy growth initiatives. Since our last call with you on April 24, we have increased our 2007 capital spending plan to $200 million from the original $145 million given the additional growth projects we have in our base business. The CapEx increases includes Polyol investments in the U.S., Mexico, and Brazil to support our acquisitions, new modified starch channels in Mexico, and a new plant investment in Pakistan to support the rapid market growth in that country. These projects are in addition to the original capital spending plan of $145 million, which I noted before includes project channel expansions in countries such as Argentina, Mexico, Columbia, Pakistan, and Thailand.

In summary, we are pleased with the outstanding sales, earnings, and margins, and returns on capital employed improvements we have seen in 2007. And we remain focused on a successful execution of our pathway strategy for future growth.

And now, I will be happy to take your questions.

Question and Answer

Operator

The question-and-answer session will be conducted electronically. [Operator Instructions].

We will take our first question from David Driscoll with Citi.

David Driscoll - Citigroup

Good morning, everyone.

Samuel C. Scott, III - Chairman, President, and Chief Executive Officer

Hi, David.

Cheryl K. Beebe - Vice President and Chief Financial Officer

Good morning, David.

David Driscoll - Citigroup

Well, first off, congratulations on this results today. You guys continue to be just doing an excellent job running the business, and it’s a real pleasure to see after all these years and the various hard times that we had in the past they sure seem like a distant memory.

Samuel C. Scott, III - Chairman, President, and Chief Executive Officer

We agree.

David Driscoll - Citigroup

Sam; wanted to address a couple of topics. The first one is, can you give us a little bit of detail on the variants in the earnings guidance between the last time and this time. So, it’s maybe a little different in Cheryl’s prepared remarks, she talked a lot about what was driving the results. But can you just really address the variants between in your earnings guidance for’07 from three months ago to what you have got today?

Samuel C. Scott - Chairman, President and Chief Executive Officer

The key issue was net corn, which is composed of both better than we expected co-product. As you know the corn numbers stayed pretty high into the second quarter. And we are able to capitalize on that both in the quarter and perhaps a little bit going forward. Secondly, we saw a better bases result than we had expected as part of the net corn complex with corn being that high the basis number was lower or less than we thought it was going to be as a charge to our corn costs.

We saw better volumes throughout the regions… all of the regions actually, in total than we had forecast. And then lastly, we saw strong driven expected… or a weaker than expected dollar, stronger than expected foreign currencies depending upon the country that we originally forecast, because we did not expect the dollar to continue to weaken as much as it has. So, those were the major factors that impacted it. And we have those under control now. We have forecasted again in the new guidance where we think things will go. And we have given a range that wraps it and where we believe we are set to be over the next six months.

David Driscoll - Citigroup

Can you talk a little bit more about capital spending plans? This is a very big increase going up to $200 million from your prior estimates. I would like to get just a little bit more detail on where the money is going to be spent by region. If you could break down the $200 million by your three reported geographies. And then Cheryl, if you wouldn’t mind commenting or Sam, if you wouldn’t mind commenting on what type of returns you would expect to generate on average by geography? I think that would help folks a lot to understand what type of potential you have.

Samuel C. Scott - Chairman, President and Chief Executive Officer

David, I wouldn’t go through specifically breaking it down by geography. But as we said, the expansions that we had announced before were primarily global expansions in Argentina, Mexico, Columbia, Pakistan, and Thailand. So, that’s a pretty even mix of regions that we are talking about. I also said the incrementals are primarily coming from growth in the businesses that we acquired primarily the Polyol business. And we will be investing in Polyols in the U.S., Mexico, and in Brazil. I alluded to a new plan in Pakistan, which obviously is in the Asian region. And I address the fact that we will be going our specialty starch business in Mexico. So, that’s where it’s coming from.

As we look at and we have said before, we are going to be very, very diligent on requiring that our capital investments at least return the cost of capital risk adjusted in the regions. So, depending upon the kind of monies we are talking about here… that is required for Pakistan is going to have longer turn as compared to one in the U.S. where you have another return calculation. But the… we have said for the Street that we would get to our cost of capital by ’08. We said today we will exceed it in ’07. And we will continue to invest to make sure that we both grow the Company and we maintain returns that are above the cost of capital.

David Driscoll - Citigroup

Sam, can I try to characterize one part of this so if there is $200 million on total spending and $50 million of it is maintenance spending, can we say here that at least two-thirds of that spending is in South America and Asia? And both of those regions should generate kind of mid teens type of return on capital. Would those be as you would agree with?

Samuel C. Scott - Chairman, President and Chief Executive Officer

It’s a ballpark kind of thing. I wouldn’t say it’s exactly that, but you are relatively close.

David Driscoll - Citigroup

Okay. Final question is just to give a further comment on South America. A year ago, we saw operating margins in that region decline. And although, that business on an operating profit basis did very well. The margins there are still a little bit lower than what I would otherwise expect. Can you talk about how you see those margins trending over the course of time?

Samuel C. Scott - Chairman, President and Chief Executive Officer

Well, David, one of the things that all of us have to remember is when costs go up as appreciably as they have, if you hold your operating income at the same level your margin decrease. And that is what we are seeing in South America. We saw… we said a substantial increase in our raw material costs. We passed through the same profits that we had, slightly higher. But because of the fact that the corn numbers and the overall cost of the business went up as substantially as it did, it reduced the margins in the overall. If we get back to a more normalized raw material base, and we held the exact same profitability we have today on an operating income levels, those margins would increase appreciably. So, what we are looking at is and we monitor the business against ROCE and growing operating income. And that’s the pretty much the drive we are focusing on right now. So, although, the margins have decreased somewhat, just remember that our costs went up and the business we are exceeding across the capital, it is kind of difficult impasse the pass through even greater margin improvement.

David Driscoll - Citigroup

Would it be logical for us to expect that margins will expand over the course of the next 12 months, or are you really trying to tell me that because of where ROCE is that’s not likely?

Samuel C. Scott - Chairman, President and Chief Executive Officer

No, no, no. I am not saying that. I am saying that the margins will… to some extent be dictated by our cost on raw material in that region. We will pass through the costs if in fact the corn would go higher. If you saw corn go lower, our margins would probably increase appreciably.

David Driscoll - Citigroup

Very good. Again, congratulations on the quarter. Thanks a lot, everyone.

Samuel C. Scott - Chairman, President and Chief Executive Officer

Thank you very much.

Operator

Our next question comes from Heather Jones, BB&T Capital Markets.

Heather Jones - BB&T Capital Markets

Good morning everyone and thank you.

Samuel C. Scott - Chairman, President and Chief Executive Officer

Hi, Heather.

Cheryl K. Beebe - Vice President and Chief Financial Officer

Hi, Heather.

Heather Jones - BB&T Capital Markets

Hi, very good quarter.

Samuel C. Scott - Chairman, President and Chief Executive Officer

Thank you.

Heather Jones - BB&T Capital Markets

I have a couple of questions. First on the CapEx, I know it’s early to be thinking about ’08, but I was just wondering this increase from $145 million to $200 million. Is this more like one-time investments, or should we expect a meaningfully higher number for ’08 as well?

Samuel C. Scott - Chairman, President and Chief Executive Officer

Well, Heather, you are right. It’s too early to talk about ’08. What we saw this was there was some significant opportunities to grow this business, and we decided to jump on them right now. We just said, historically, that our number was in the range of $100 million to $120 million. We said as we were growing it, we would probably go up something from that, but I am not ready to comment yet on what we think ’08 would be.

Heather Jones - BB&T Capital Markets

Okay. And as far as North America, the margins have been very strong here. I was just wondering if you could give us an updated view of what you see as a sustainable EBIT margin here.

Samuel C. Scott - Chairman, President and Chief Executive Officer

We have always commented, we thought that our North American business could get into the low teens level. And obviously, that’s what we are reflecting now. We said at the end of the first quarter, we expected the year would not be at the same level that we had for the first quarter. The second quarter came in about the same level. But I will say it again that, if corn costs go up, the margins will probably come down. But over time, we expect North America to be able to perform in and around with low teens.

Heather Jones - BB&T Capital Markets

Okay. And then finally, I was just wondering going into just I believe your contracting season starts up I guess October or so. So, I was wondering beyond any corn cost increases, do you anticipate having a further pricing power, or are we at the point now where you will pass through cost increases, but nothing much beyond that?

Samuel C. Scott - Chairman, President and Chief Executive Officer

Well, I think, that… yes, utilization has not changed since last year for the most part. I mean, it’s about the same as it was last time. So, I think the margins are pretty attractive right now. So, we are in a position where we certainly can pass through at least the cost increases, we think. And I think there could be some places where if in fact someone had a longer term position or contract, we would have opportunities to get some margin improvement. We might get a little bit more on the regular business. But I think right now with the utilization where it is, and with the margins where they are, in general, we would be looking to pass through increases of cost as well as to have a little bit more margin if we can.

Heather Jones - BB&T Capital Markets

Okay. And then my final question is on South Korea. Clearly, you bought down your expertise… expectations for the year. But I was just wondering with the new management in place, I mean, have you seen any encouraging developments there as far as how the business is being run for us going forward?

Samuel C. Scott - Chairman, President and Chief Executive Officer

Well, it’s a little soon for that. I just got back from… not just got back, I was in Asia last month and we met with management over there. And they have been given specific margin of what is… what are we looking for. They know what they have to do. I expect to see it. We pulled South Korea out specifically to say, this is where our issue is. And we told you and identified issues for the Street before that we have to work on and fix. Now, we brought this one out specifically, so we can say it’s an issue. We will work on it, we will fix it.

One of the things that we talked about in South Korea is the fact that we have higher corn cost. We did not allude to the fact that we have significantly higher ocean freight also. So, as the Street looks or as our customers in Korea look at cost of corn, they are not seeing the full impact of the entire delivered cost that was in our marketplace. So, we have to work cost through… work way through that. We are working on that right now. We did put a new General Manager in. We are looking at other opportunities for that business and stay tuned.

Heather Jones - BB&T Capital Markets

You mentioned the freight cost, I mean are you having to take more corn out of the U.S. now, given how… just the reports we have been reading China clamping down more on their corn usage and export. I mean are you having to take more out of the U.S. and that’s increasing your freight cost, or is there something else going on?

Samuel C. Scott - Chairman, President and Chief Executive Officer

The price of corn in Korea is landed price against any location. So, if we get out of Korea, out of China, we get out of Brazil, we get out of U.S., all having the same, because what they do, they take a landed price off of the U.S. freight base. So, it doesn’t really matter where we are getting it from. It varies depending upon when the buy is made. If we can get out of China, we do. If we get it out sometimes it comes out of Brazil, sometimes it comes out of U.S. So, the issue of where doesn’t impact the pricing, but the pricing is impacted in general by the freight cost that are in the marketplace, and right now, they are substantially higher than they had been.

Heather Jones - BB&T Capital Markets

Okay. I appreciate and congratulations again.

Samuel C. Scott - Chairman, President and Chief Executive Officer

Thank you very much.

Operator

Our next question comes from Vincent Andrews, Morgan Stanley.

Vincent Andrews - Morgan Stanley

Good morning, everyone.

Samuel C. Scott - Chairman, President and Chief Executive Officer

Good morning.

Vincent Andrews - Morgan Stanley

Congratulations of course.

Samuel C. Scott - Chairman, President and Chief Executive Officer

Thank you.

Vincent Andrews - Morgan Stanley

I am just wondering from a pricing perspective you can distinguish or provide some color a little bit between product price realization and co-product credits. And I guess kind of what is driving at is, what seemed to me that your co-product credits will be lower going to the balance of the year, given the fact that corn is come down. And perhaps you could even talk a little bit about kind of where you expect the corn price to go? And obviously that would your guess just like anybody else is.

Samuel C. Scott - Chairman, President and Chief Executive Officer

Well, certainly, we forecasted our co-products would go down as corn goes down in the environment we are living in right now. And you are right we have taken a guess on it. And we said earlier that we thought the corn numbers will drop to around… between 3 and 3.75 at the bottom. Based on where it is right now, it could go a little lower than that. It might not; I mean lot of it right now is dependent upon weather. But it looks pretty decent out there right now. And the most recent reports reflect that we could see it down to the 3 or slightly below $3 level, near short-term as to bottom. So, that would have an impact on our co-product credits for this year. A regular… that the finished product prices for the most part in North America as we set the contract. So, with the exception of spot business which is not a lot, our pricing is pretty well fixed in North America. That does not necessarily apply to South America, although, we have some business to goes out for the quarter in the South American marketplace. And we have got our business going reasonably well in… throughout all of South American, and we have commented already on the Asian market, again, it’s mostly spot. So, we can get some price movement for the rest of the year, but we have taken that into account in the guidance.

Vincent Andrews - Morgan Stanley

Okay. Sam, did you allude in your prepared remarks that you maybe had contracted in terms of your co-product credits for the balance of the year, or am I misunderstanding that?

Samuel C. Scott - Chairman, President and Chief Executive Officer

What I said is sometime as we go forward, a little bit on co-product credits where we certainly don't have a large chunk of it. It’s not way out.

Vincent Andrews - Morgan Stanley

Okay. And then just thinking about next year corn costs, if corn didn't do what you get that it going to do and then it moves to the lower range. Obviously, your… the co-product credits would come down with it. Any sort of guess on how you would be year-over-year on corn costs? I mean it would be fair to assume just directionally that your net corn costs would be lower?

Samuel C. Scott - Chairman, President and Chief Executive Officer

That’s a difficult to forecast right now, Vincent. But obviously, you said if in fact we saw those kind of numbers, we would have to see what happens with co-product credits in a couple of areas, because obviously, they vary depending upon if you are talking feed meal or oil. But if we would to see significantly lower corn, then… growth corn, then the probability is we would see lower net corn costs just by the fact that the corn is 100% and the co-products are about 40%. So, we would see better numbers.

Vincent Andrews - Morgan Stanley

Okay. That’s helpful. And just one last question I think you kind of alluded to it when you discussed North American utilization. But there has been nothing… all sorts of stuff written about the supply less on ethanol so, I am just wondering if you are seeing anybody… any sort of swing capacity from ethanol in a wet mill comeback to hybrid corn share.

Samuel C. Scott - Chairman, President and Chief Executive Officer

We did not experience or seen that yet, as you know. And you said it when you said wet mill, in most of the ethanol glut is on the dry mill side, although, ethanol is ethanol. But certainly, the wet mills that lease we know are producing ethanol as far as we can tell, are still producing ethanol at a high rate.

Vincent Andrews - Morgan Stanley

Okay. Thank you very much and congratulations again.

Samuel C. Scott - Chairman, President and Chief Executive Officer

Thank you.

Cheryl K. Beebe - Vice President and Chief Financial Officer

Thank you.

Operator

Our next question comes from Christine Mccracken with Cleveland Research.

Christine Mccracken - Cleveland Research Company

Good Morning.

Samuel C. Scott - Chairman, President and Chief Executive Officer

Good morning. How are you?

Cheryl K. Beebe - Vice President and Chief Financial Officer

Good morning.

Christine Mccracken - Cleveland Research Company

All right. Just a couple of questions. First on South Korea, it seems like you are hearing an inflexion point there. You talked I think in the last quarter about Meffert 2 [ph], developed the new products, and obviously, you have had a number of changes there and you commented earlier on that. I am just wondering can you talk a little more about specific products that might have been introduced recently. Have you had any progress there? And really is there anything else that might be driving your better outlook, I guess, for the rest of the year?

Samuel C. Scott - Chairman, President and Chief Executive Officer

Well, we are looking to expand our product portfolio in Korea, Christine, from both what we developed there as well as what we developed in other parts of the world and we introduced in South Korea. And that’s something the new management has been made aware of that we want him to do. In addition to that we have some new products. We haven't identified specifically what they are, that the Korean team has developed, and we are working on furthering that development right now. I would rather not comment on it. But the other thing that we have to do in that marketplace is look at how we manage that business and how we run it. Can we be more aggressive in the export market in the region, can we be more aggressive in the marketplace itself. Those are things we have to look at in addition to introduction of new products as well as cost. So, the overall running of the business we are looking at. I am not going to give the specific detail as to the formula one, two and three as how we will get it back. But I think that identifying it, singling it out to all of you so that we have put ourselves in a position where we have to fix it, we will fix it.

Christine Mccracken - Cleveland Research Company

It sounds good. And then just on China, we have heard a lot of… read about some of these Hog heard disease issues that might be impacting feed demand going forward, and I know it is maybe early days. But given that you do operate maybe not as much there, but in surrounding regions. Just wondering if you are seeing anything about potential for weaker demand to maybe improve the outlook or I guess, fuller corn costs overall, or have you seen anything that might indicate that feed demand may change, that could benefit you long-term?

Samuel C. Scott - Chairman, President and Chief Executive Officer

Christine, I missed what you said the prior you said some sort of a herd?

Christine Mccracken - Cleveland Research Company

I am sorry. There is some disease issues in the Chinese Hog industry.

Samuel C. Scott - Chairman, President and Chief Executive Officer

No, that has not impacted our business right now. What it could conceivably do is all of us heard of all the problems taking place in China. It may open up a market for further exports into the country. Right now, we have not seen it as yet. The market for feed around the world is shifting a little bit as a result of GMO. I am sure you have heard what is going on in Europe right now. That market is starving for feed right now, because the government is not allowing GMO feed to come in. Which you mentioned in China also, open up an opportunity there if in fact it materializes and grows the Hog business is reasonable size because of the size of China. But it is not a huge market right now and it’s the demographics and logistics of getting it in there that are going to be difficult. But that is not a major factor in our business plan now.

Christine Mccracken - Cleveland Research Company

Al Right. And then just on freight you did mention that obviously freight rates have been high. Just wondering as you look at your risk management strategies, have you talked at all about what you might do to manage kind of your exposure there? Do you expect things to continue to be a…. problematic I guess from your end pointers as that pass through or so?

Samuel C. Scott - Chairman, President and Chief Executive Officer

Most of the time, if we’re talking about ocean freight, we are able to pass it through because of the market scenario we talked about. There are only a few countries where we actually have to shift corn to the location, Korea being the primary one, Columbia being another one. The rest are either domestically grown you can get it by rail, so it’s not an issue as far as ocean freight goes.

And we think that over time we will be able to manage that through. And also we’ve seen the cycles on ocean freight. So, we try to catch it at a lower level and go forward. But we don’t always do that, so we have to manage our way through this issue and we will.

Christine Mccracken - Cleveland Research Company

All right. I’ll leave it at that. Thanks.

Samuel C. Scott - Chairman, President and Chief Executive Officer

Thanks, Christine.

Operator

Our next question comes from Christina McLaughn, Deutsche Bank.

Christina McLaughn - Deutsche Bank

Good morning. Sam you had talked about as corn prices go lower that co products should follow it. But corn with meal has stayed really firm even though corn has gone lower.

Samuel C. Scott - Chairman, President and Chief Executive Officer

Right.

Christina McLaughn - Deutsche Bank

And it’s pretty high relative to Soy bean meal. So do you… what’s driving that and do you think it’s sustainable?

Samuel C. Scott - Chairman, President and Chief Executive Officer

I think it’s sustainable at a higher level than Soy bean meal, I don’t know if it’ll be at the same level as today. I think certainly if it comes down a little bit we may see that if corn comes down a little bit, and Soy bean comes down a little bit, we’ll see it. But I think the over all complex right now for meal and protein is pretty strong. And if that complex stays strong to the point that we were just making before that parts of the world that need proteins or animal feeds. And the world is growing and the chickens and the hogs and everybody else are needing to be fed. We’re going to see reasonably good demand for meal which would drive reasonably decent pricing. So, it may not be, and I can’t say it won’t be, but I’ll say it may not be the same corollary in pricing as we have seen historically between meal and corn. Just like as you see bio-diesel become a reality, it may not be the same reality we’ve seen in the past or the relationship we’ve seen in the past between oil and corn. Feed which is a lower protein level is going to be more tied directly to corn because corn and feed compete directly with each other on the animal feed side.

Christina McLaughn - Deutsche Bank

Okay. And on feed, through the EU was expected to allow Hercules in July and it didn’t happen and now it’s supposed to, it may happen in October. Do you think that they will make that decision in October? And we’ll see a pop in corn and feed prices in the fall?

Samuel C. Scott - Chairman, President and Chief Executive Officer

Christina, I wish I could answer that for you. I thought we would have seen it back in the July timeframe because the… as I said right now Europe is slaving for feed because they don’t have enough of it. The feed users are trying all kind of things. For whatever reason it was not approved, I would assume that… I can’t, no I won’t assume anything. I would think that they might approve in October but I just really don’t want to have a guess on that, because I don’t want to mislead anybody. I don’t know what they’re going to do.

Christina McLaughn - Deutsche Bank

Okay. And then Sam on the last call, your tone on Argentina was a little bit more muted. You talked about higher energy cost and the fact that sugar was capped to it, limited your pricing ability. But now you talked about passing through with minimal impact to the business. That we’re also seeing an energy crisis. So can you tell me what’s changed in that market?

Samuel C. Scott - Chairman, President and Chief Executive Officer

Team has just done a great job executing it. I mean they have sucked it up and they’ve pushed it through and they’ve worked on cost in other areas. They’ve worked on cost in those areas and they’ve been able to move some pricing through to get us the returns that I just said, I talked about in this quarter.

Christina McLaughn - Deutsche Bank

So is it pricing on things other than factors increased as well?

Samuel C. Scott - Chairman, President and Chief Executive Officer

We were able to move prices to reflect the overall cost of both corn and energy in the Argentine market in Sopiyas [ph].

Christina McLaughn – Deutsche Bank

Okay. And then last question, in the past you had said that Asia, Africa … well, I guess Asia would be your major growth driver, particularly China. And now most of this incremental CapEx is going elsewhere. So, I’m wondering if the strategy has changed maybe because China’s limiting industrial uses of corn or if it’s still to leave.

Samuel C. Scott - Chairman, President and Chief Executive Officer

Well, first I said the growth strategy was Asia. I don’t think we’ve ever said, Christina, that it was primarily China. I think we’ve alluded to the fact that China and India are both large markets. But I don’t think we ever said we’re going to focus primarily on China. And certainly, we are looking still at that being our strategy. We see opportunities there. I was in India earlier this year; I was in Asia, China, Thailand and Korea earlier this year. We still see it as a substantial opportunity to grow the business. The capital investment, the reason we didn’t talk to China is we probably would not look at Greenfield in China we’d look at something other than that. So it would not be a part of our capital project and we continue to look for and try to find the right partner or acquisition or JV or whatever we’re going to find in China to continue to grow that strategy and we will continue to look for that.

Christina McGlone - Deutsche Bank

Okay and sorry last question. In North America the volume growth, was that In the U.S. or Mexico?

Samuel C. Scott - Chairman, President and Chief Executive Officer

The volume growth that I talked about was against what we thought it was going to be when we gave guidance last time. It was throughout the region.

Christina McGlone - Deutsche Bank

The volume growth… the volume growth that you reported in the quarter, the 1%?

Samuel C. Scott - Chairman, President and Chief Executive Officer

The 1% was throughout the region for the most part but I don’t know if you’re asking about the volumes that we had the 1.2% or…

Christina McGlone - Deutsche Bank Securities

Yes, the 1.2%.

Samuel C. Scott - Chairman, President and Chief Executive Officer

That was primarily in the acquisition piece that we got in the U.S., yes.

Christina McGlone - Deutsche Bank Securities

Okay. Thank you.

Samuel C. Scott - Chairman, President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Kenneth Zaslow, BMO Capital Markets.

Kenneth Zaslow - BMO Capital Markets

Hey, good morning everyone.

Samuel C. Scott - Chairman, President and Chief Executive Officer

Kenny, how are you doing?

Kenneth Zaslow - BMO Capital Markets

Hey, I think you actually said that if corn goes to $2.80 to $3 lower, you’d expect lower gross corn cost in 2008 is that what I heard?

Samuel C. Scott - Chairman, President and Chief Executive Officer

I said it could be, yes.

Kenneth Zaslow - BMO Capital Markets

But if… just a lot more clarity than you’ve given in the past in terms of corn cost So I just want to make sure I understood that. That’s good.

Samuel C. Scott - Chairman, President and Chief Executive Officer

So, I think you know where corn was this year, and where it was as when we went into it certainly it was above the $2.80 number.

Kenneth Zaslow - BMO Capital Markets

Yes. But if you think about it during the summer of last year they were lower than that. So, I was just trying to get a better gauge of kind of when you locked in corn prices last year. I think that helps out a lot so --?

Samuel C. Scott - Chairman, President and Chief Executive Officer

Just to make sure you understand where we are, we say we lock incorn and we do the contract and you know pretty much when we do our contracting. So for us to have locked corn in, in the middle of last year would have been a little unusual in a way from where we normally thought.

Kenneth Zaslow - BMO Capital Markets

Okay. North American margins dropped 30 basis sequentially, so it’s essentially nothing. But for the back half of the year you’re looking… you can just do the math, about a 100 to 200 basis point drop in North America margins. Again to me you have locked in corn, I understand that the future’s current about corn going into last year has some sort of negative impact. But you still got high futures points you’ve locked in, you’ve got co-products, year-over-year comparisons looking pretty good. Why would you think that the sequential drop would be so significant?

Samuel C. Scott - Chairman, President and Chief Executive Officer

Well, I don’t know that I said what it would be Ken; I just said we expect that as a result of higher corn cost that we would probably see margins in North America drop, I didn’t say how much. And when we gave guidance on it was what we thought we would see in the overall of our business around the world. So the 100 to 200 basis points number that you talked about, I did not… I don’t think I’ve mentioned those numbers. And I’m not going to mention it now. Just say that we do expect that we would see a lower second half and a first half based on the way corn goes on a normal basis.

Kenneth Zaslow - BMO Capital Markets

Okay just… okay that is fine with me. And just sounds… kind of backing into the numbers seeing your, South America is a little, you got growth. Asia was relatively flat and edged back into it. That’s why I was trying to figure that out.

Samuel C. Scott - Chairman, President and Chief Executive Officer

Okay.

Kenneth Zaslow - BMO Capital Markets

In terms of this, again the sequential sales growth in North America from one Q to the second quarter, the pricing accelerated again sequentially. What was that attributed to and is that the type of pricing we should be expecting for the back half of the year as well?

Samuel C. Scott - Chairman, President and Chief Executive Officer

Well, in the fixed price business Ken, the price is fixed so it’s flat.

Kenneth Zaslow - BMO Capital Markets

Right.

Samuel C. Scott - Chairman, President and Chief Executive Officer

The grain related business would vary based on where corn is. So if you ran corn through the course of its normal carry, you would see higher corn costs in the second quarter than you would in the first, and typically see higher corn cost in the third quarter than you would in the second. So given that scenario you’d probably see some sales growth that would be related more to raw material cost than change in price or margin.

Kenneth Zaslow - BMO Capital Markets

Okay. And you mentioned the South Korea issue, how does that fit into your long-term business model? I think you said in the end of your prepared remarks that it is not a business; clearly you’re not planning you don’t want to sell the business. Well how does this fit into the long-term your business model at Corn Products?

Samuel C. Scott - Chairman, President and Chief Executive Officer

It fits in well if we fix it. And it doesn’t fit in too well if we don’t fix it. And we said we’re going to fix it.

Kenneth Zaslow - BMO Capital Markets

So, what is it that… why do you need that South Korean business, why the headaches and is it just worth selling?

Samuel C. Scott - Chairman, President and Chief Executive Officer

Well it’s a….kind of got good margins.

Kenneth Zaslow - BMO Capital Markets

Okay.

Samuel C. Scott - Chairman, President and Chief Executive Officer

And still it provides substantial cash flow. It’s a foundation to Asia, which is part of our marketplace. We can explore from there into Japan and China. It just makes good business sense. And I guess the question could be for any country why do we have it in fact, we are going to single out Korea, Korea has better margins than some of our other countries right now. The issue is that it has gone, the margins have gone from a very, very high level to a very attractive level but they are down. So they have impacted the overall operating income of the country and therefore the region, but the business is a solid business, when I say fix it, I don’t mean to imply that this is a broken business, I mean it’s one that we can get… we just need to, fine tune it and make sure we get it back on track, so we can grow a little bit more.

Kenneth Zaslow - BMO Capital Markets

All right. And my last question is, can you give us an update on your thoughts on Mexico? I have to ask you right?

Samuel C. Scott - Chairman, President and Chief Executive Officer

Mexico, everything or what. I think Mexico was a good place and …

Kenneth Zaslow - BMO Capital Markets

I’m talking about the borders?

Samuel C. Scott - Chairman, President and Chief Executive Officer

I know what you are talking about Kenny. I have been a bit apart from the normal line of the border, the border is still forecast to open in its entirety I have said continually I thought that they would probably be manage to trade across the border into ’08. As we get closer to it, I am still at that position, although there is still talk about an open border. So, however those things change in a minute, in a blink of an eye depending upon when the trade people are talking. So, I think you are going to see more volume going into Mexico next year regardless, but the issue of how much is still an open question. It’s not a lot, I mean if the border opened up all the way there is not a whole heck of a lot more than it’s going to go in any way, because it is not available. But having said that if the border opens up it will still tighten.

Kenneth Zaslow - BMO Capital Markets

Actually I am thinking one more question, I am sorry. If corn prices do come back and self correct to the $2.80, $3 number, your pricing for ’08, ’09 going forward is more continuing on capacity utilization rates or Corn cost?

Samuel C. Scott - Chairman, President and Chief Executive Officer

Always been based on utilization, Ken, if utilization is solid, we can pass corn through, or we can hold on to some of the benefits as is the normal rule, if utilization is soft, we end up not being able to face all of it through or not being able to hold on through all of it. So, it’s more of a fact with utilization than corn cost, basically.

Kenneth Zaslow - BMO Capital Markets

Great. Thank you very much.

Samuel C. Scott - Chairman, President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Ann Gurkin, Davenport.

Ann Gurkin - Davenport & Company

Good morning.

Samuel C. Scott - Chairman, President and Chief Executive Officer

Good morning, Ann. How are you?

Ann Gurkin - Davenport & Company

Starting with HFC as contracting in the U.S., are you hearing from customers if they want to negotiate contracts earlier than normal, again this year like we saw last year?

Samuel C. Scott - Chairman, President and Chief Executive Officer

Not in general Ann. It’s, this is generally the relatively quiet time there maybe one or two to come in but not, not a lot.

Ann Gurkin - Davenport & Company

Okay. But the same level as you saw last year? Last year just the timing?

Samuel C. Scott - Chairman, President and Chief Executive Officer

About the same thing, yes.

Ann Gurkin - Davenport & Company

Okay. And then I saw a report. It indicated in 2006 Corn sweetener de-leverage were down by 2.4% which seems to be a bigger decline now would have thought. Some concern that maybe we are building a little bit of softness in the utilization as we go into 2007, and I will be interested in your comments on that?

Samuel C. Scott - Chairman, President and Chief Executive Officer

I think in the first half of the year, they were off a bit, I think they are starting to pick up now. We did have a relatively cool first half revenue… rather the cool third quarter too right at the moment. But I think that you are seeing… we are seeing volumes picking up a little bit as we go into the summer months because even though its cool rather than pretty good in that, and obviously our sales are somewhat dependent upon whether… as to where they go. In addition to that, I guess that’s pretty much it and we have said that we expect to see plus or minus 1% in growth on an annual basis. This time it was down soup for the first quarter, I don’t think that’s indicative of anything long-term.

Ann Gurkin - Davenport & Company

Okay. So for the year 2007 you look for them straight to be plus or minus 1%, so?

Samuel C. Scott - Chairman, President and Chief Executive Officer

It… somewhere around that, I mean maybe off by a little bit, but I don’t think it’s going to be off by much.

Ann Gurkin - Davenport & Company

But not in the down 2% range?

Samuel C. Scott - Chairman, President and Chief Executive Officer

I don’t want to say definitely not, but I mean I don’t see it at that level right now.

Ann Gurkin - Davenport & Company

Okay. That’s great. That’s all I have. Thank you.

Samuel C. Scott - Chairman, President and Chief Executive Officer

Thank you.

Operator

[Operator Instructions].

We will go next to Pablo Zuanic, JP. Morgan.

Pablo Zuanic - JP Morgan

Good morning, everyone.

Samuel C. Scott - Chairman, President and Chief Executive Officer

Good morning.

David A. Pritchard - Director, Investor Relations

Hi, Pablo.

Pablo Zuanic - JP Morgan

To talk on the equations. I understand the neutral [ph] integration is very fluid and that there is a sort of scenarios in terms of how and when, the board would actually opens, but assuming that it was total free trade and anecdotally Cola bottlers in Mexico, what are the economies that we will be looking at right now. I mean do you have numbers in that regard, I mean how much it would cost them to be buying sugar based on Mexican prices and due this area on HFCS?

Samuel C. Scott - Chairman, President and Chief Executive Officer

If in fact the border were opened all the way, it would be advantageous to the bottlers in Mexico to buy high purchase.

Pablo Zuanic - JP Morgan

Would there be any structural impairments in terms of either taste, flavor or the production process for them to make the switch?

Samuel C. Scott - Chairman, President and Chief Executive Officer

If certainly Coca-Cola has approved it to a certain level and if it were more available I think it will approve it to the same as they have done here. But there will be a change in flavor or taste to some extent… or small extent, But if you think about the fact that all of the beverage companies in the U.S. are using high fructose and some of them are even exporting product to Mexico, the taste differential is not that significant. If you get away from the major brands, the Cokes and the Pepsis of the world, they swing in and out of high fructose 55, 42 and sugar depending upon pricing, anyhow it always has. So, I don’t think this is significant enough issue on taste it would preclude anybody from using fructose if it was available, and I think it’s a matter of just the availability for the product to go and so all the bottlers in Mexico would be looking at high fructose.

Pablo Zuanic - JP. Morgan

Okay. That’s helpful. And just to have related to that, when I think of Brazil, I understand the Mexican situation they think in terms of NASTA and the streets in total are still somewhat protected from what I remembered. In the case of Brazil when I used to cover Cola bottlers there, from my understanding, its not a protected market for sugar, sugar, they use sugar for Coca-Cola there because it’s cheaper than HFCS. So, even … I am trying to understand what’s the growth potential, what’s driving the growth of HFCS in South America, particularly in a market like Brazil where I understand a bottler uses sugar because its cheaper than HFCS?

Samuel C. Scott - Chairman, President and Chief Executive Officer

But we don’t have any fructose in Brazil.

Pablo Zuanic - JP Morgan

Okay.

Samuel C. Scott - Chairman, President and Chief Executive Officer

We do produce fructose in Argentina where sugar is regulated but much higher than it is Brazil. Well that matter of fact, Argentina is the only place in the whole of South America we have been due produce high fructose corn syrup and it’s not that the corn of anything close to what we produced in North America. But there are markets in South America, Columbia being one, Argentina being another, where the price relationship between fructose and sucrose is in favor of fructose. We only produce it in Argentina though.

Pablo Zuanic - JP Morgan

Right. Okay. And one last one, just on corn, I know that beside you speak trust widely today but in terms of your hedging policies, do you just hedge corn on what you have contracted on a fixed price nature but the other, the balance of the business, the co-products that portion of business corn is not hedged or how should we think of that?

Samuel C. Scott - Chairman, President and Chief Executive Officer

That’s correct. Basically on a fixed price business, we hedge as soon as we do the fixed price. We said we have a very small anticipatory hedge program that we allow ourselves to buy some corn not to a hedge position, but that’s we never said how much it is, we’ve said its relatively small. On the co-products, we do not hedge the corn because co-products vary and we can’t sell it forward. So, basically we just… the co-products flow and the corn associated with it flows.

Pablo Zuanic - JP Morgan

Okay. But just a last follow-up there. When we see the significant margin expansion that you had this year, if you have to distinguish between the portion of that as coming from the fixed price contracts and what’s co-products. It would seem that this co-products what’s driving the bulk of that margins expansion, is that a fair assessment?

Samuel C. Scott - Chairman, President and Chief Executive Officer

No, we’ve… we’ve done very, very well on the pricing of the primary products to expand margins and the co-products have been strong, but they have been strong in relation up to a very high corn price or a relatively high corn price. So, I would say the… the major piece of the improvement we are seeing in margin has come from the primary products price increase.

Pablo Zuanic - JP Morgan

All right. Thank you.

Samuel C. Scott - Chairman, President and Chief Executive Officer

Thank you.

David A. Pritchard - Director, Investor Relations

Thank you.

Operator

We’ll take a follow-up from Christina McLaughn, Deutsche Bank.

Christina McLaughn - Deutsche Bank

Sam, thanks for taking the follow-up. Following on Heather’s question, is Mexico open and fructose juice increased there closer to U.S. levels? What’s the current talk about what would happen to the display sugar from Mexico, would that come up here?

Samuel C. Scott - Chairman, President and Chief Executive Officer

Well if it opens, the sugar can come up here because both products can go freely across the border. That’s the reason I said I think it will be managed trade, I don’t think that the sugar people in the U.S. are going to open the border completely to Mexican sugar coming in. I don’t think the Mexican governments are going to just say, you all ship as much fructose down as you want. But yes the issue would be that Mexican sugar would be free to come across the border just like U.S. fructose will be free to go across the border heading south.

Christina McLaughn - Deutsche Bank

And do you think that the U.S. government has committed to keep the currents, the prices of import some sugar?

Samuel C. Scott - Chairman, President and Chief Executive Officer

I don’t know.

Christina McLaughn - Deutsche Bank

Because in more case, if you have been, all this sugar coming in from Mexico, and so you don’t want to change the price and the demand is a certain level, how do you manage that situation?

Samuel C. Scott - Chairman, President and Chief Executive Officer

Well, I mean I think that we have had a sugar program in this country for a long time. Your question to me was, do I think that committed to hold that? I can’t answer that question. And I think that definitely because it’s been in place for an extended period of time, I am talking about 30 years there would be a reasonable assumption that something would be in place going forward. But the sugar lobby is exceptionally strong in this country and I can’t imagine if they would say oh gee, just go ahead and let it go in slope. But I can’t commit to that and I can’t say for sure that’s what’s going to happen.

Christina McLaughn - Deutsche Bank

Okay. Thank you.

Samuel C. Scott - Chairman, President and Chief Executive Officer

Thank you.

David A. Pritchard - Director, Investor Relations

Operator, if there is one more question, we will take one more before closing down the call.

Operator

No, sir. There are no further questions at this time.

David A. Pritchard - Director, Investor Relations

Okay. Thank you, operator. It does appear there are no more questions, and as a result, we will conclude our conference call in our webcast. As a reminder I do want to mention there is a replay of this webcast, of course at www.cornproducts.com and there is a replay of the audio conference call for those of you, who are interested. It’s available through Friday, August 3rd and that phone number for the audio conference call is 719-457-0820 and you’ll need the passcode of 1281465 in order to access that replay. So on behalf of Sam Scott and Cheryl Beebe, I want to thank you for participating in our call this morning and we will talk to you again in late October with our 2007 third quarter results. Have a good day.

Operator

And this concludes today’s conference. Thank you for your participation. You may disconnect at this time.

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Source: Corn Products Q2 2007 Earnings Call Transcript
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