SEABOARD CORP /DE/ (SEB) FY 2023 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management Discussion and Analysis is provided as a supplement to, and should be read in conjunction with, Seaboard’s consolidated financial statements and the accompanying notes in Item 8. Certain statements in this report contain forward-looking statements. See the introduction in Item 1 for more information on these forward-looking statements, including a discussion of the most significant factors that could cause actual results to differ materially from those in the forward-looking statements.

OVERVIEW

Sales and costs of Seaboard’s segments are significantly influenced by worldwide fluctuations of commodity prices and changes in global political and economic conditions. Accordingly, sales, operating income and cash flows can fluctuate significantly from year to year. As each segment operates in a distinct industry and a different geographic location, management evaluates their operations separately. Seaboard’s reporting segments are based on information used by Seaboard’s CEO in his capacity as chief operating decision maker to determine allocation of resources and assess performance.

Pork Segment

The Pork segment primarily produces hogs to process and sells pork products throughout the U.S. and to foreign markets. Sales prices are directly affected by both domestic and worldwide supply and demand for pork products and other proteins. Feed accounts for the largest input cost in raising hogs and is materially affected by price changes for corn and soybean meal. Market prices for hogs purchased from third parties for processing at the plant also represent a major cost factor. As a result, commodity price fluctuations can affect profitability and cash flows. This segment is Seaboard’s most capital-intensive segment, representing approximately 63% of Seaboard’s total fixed assets and approximately 52% of total inventories as of December 31, 2023. With the plant generally operating near capacity, Seaboard is continually looking for ways to enhance the plant’s operational efficiency, while also looking to increase margins by introducing new, higher margin value-added products. This segment produces biodiesel and renewable diesel and related credits for sale to third parties. Sales prices are affected by the supply and demand of diesel and environmental credit initiatives. This segment also produces renewable natural gas, but Seaboard does not expect its sales to be significant in 2024 as just a few sites are operational and production is dependent upon maturity of the lagoons.

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CT&M Segment

The CT&M segment provides integrated agricultural commodity trading, processing and logistics services. The majority of its sales are derived from sourcing agricultural commodities from multiple origins and delivering them to third-party and affiliate customers in various international locations. This segment’s sales are significantly affected by fluctuating prices of various commodities, such as wheat, corn and soybean meal. Exports from various countries can exacerbate volatile market conditions. Profit margins are sometimes protected through commodity derivatives and other risk management practices, but the execution of these purchase and delivery transactions has long cycles of completion, which may extend for several months with a high degree of price volatility. As a result, these factors can significantly affect sales volumes, operating income, working capital and related cash flows from period to period. This segment represents approximately 41% of Seaboard’s total inventories as of December 31, 2023. Consolidated subsidiaries and non-consolidated affiliates operate the grain processing facilities in foreign countries that are, in most cases, lesser developed and can be significantly impacted by changes in local crop production, political instability and local government policies, as well as fluctuations in economic and industry conditions and foreign currency exchange rates.

Marine Segment

The Marine segment provides cargo shipping services in the U.S., the Caribbean and Central and South America. Fluctuations in economic conditions and political instability in the regions or countries in which this segment operates may affect trade volumes and operating profits. In addition, freight rates can fluctuate depending on regional supply and demand for shipping services. Since this segment time-charters ocean cargo vessels, it is affected by fluctuations in charter hire rates as well as fuel costs.

Sugar and Alcohol Segment

The Sugar and Alcohol segment produces and processes sugar and alcohol in Argentina, primarily to be marketed locally. This segment’s sales and operating income are significantly affected by local sugar and alcohol prices, domestic sugar production levels and government regulations on local prices. The currency exchange rate can have an impact on reported U.S. dollar sales, operating income and cash flows.

Power Segment

The Power segment is an independent power producer in the Dominican Republic. Spot market rates are impacted by fuel prices and the various producers supplying power to the grid. While fuel is this segment’s largest cost component and is subject to price fluctuations, higher fuel costs generally have been passed on to customers.

Turkey Segment

The Turkey segment, accounted for using the equity method, produces turkeys to process and sells turkey products. Sales prices are directly affected by both domestic and worldwide supply and demand for turkey products and other proteins. Feed accounts for the largest input cost in raising turkeys and is materially affected by price changes for corn and soybean meal. As a result, commodity price fluctuations can affect profitability and cash flows.

LIQUIDITY AND CAPITAL RESOURCES

Management believes Seaboard’s combination of internally generated cash, liquidity, capital resources and borrowing capabilities will be adequate for its existing operations and any currently known potential plans for expansion of existing operations in both the short-term and long-term.

Liquidity includes cash and cash equivalents, short-term investments and available borrowing capacity under line of credit facilities. As of December 31, 2023, Seaboard had cash and short-term investments of nearly $1.0 billion and additional total working capital of $1.0 billion. The following table presents a summary of Seaboard’s available borrowing capacity under lines of credit.

Seaboard’s available borrowing capacity increased $403 million from December 31, 2022. Seaboard’s committed line of credit agreement was amended and restated during the first quarter of 2023, increasing the committed borrowing capacity from $250 million to $450 million.

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Seaboard’s liquidity was not significantly impacted by the common stock repurchase transaction that occurred during the fourth quarter of 2023, which is further discussed in the Financing Activities section below. On the day of closing, Seaboard incrementally borrowed less than $50 million under its existing credit facilities to fund the repurchase and working capital. The remaining repurchase amount was funded by cash on hand and cash from the sale of short-term investments. Cash and short-term investments as of December 31, 2023 decreased $256 million from December 31, 2022.

Summary of Sources and Uses of Cash

Seaboard’s principal funding source is cash from operating activities and its principal cash requirements primarily include operating expenses and capital expenditures. Cash flows from investing activities for short-term investments are part of Seaboard’s overall liquidity management strategy. Short-term investment purchases are a result of the investment of excess cash, asset allocation from the active management of the portfolio and reinvestment of matured securities.

As of December 31, 2023, $49 million of the $1.0 billion of cash and short-term investments were held by Seaboard’s foreign subsidiaries. Historically, Seaboard has considered substantially all foreign profits as being permanently invested in its foreign operations, including all cash and short-term investments held by foreign subsidiaries. During 2022, Seaboard reversed its indefinite reinvestment assertion in connection with certain previously-taxed undistributed earnings of its Seaboard Marine subsidiary due to the tax effectiveness of repatriating these earnings and recorded a deferred tax liability for federal and state incremental tax costs associated with the repatriation. For all other foreign subsidiaries, Seaboard intends to continue permanently reinvesting their funds outside the U.S. as they continue to demonstrate no need to repatriate them to fund Seaboard’s U.S. operations for the foreseeable future. Seaboard has not recorded deferred taxes for state or foreign withholding taxes that would result upon repatriation of these funds to the U.S. because determination of the tax that might be paid on unremitted earnings if eventually remitted is not practical due to the complexity of the multi-jurisdictional tax environment in which Seaboard operates.

In 2021, the OECD released Pillar Two Model Rules (“Pillar Two”) to address the tax challenges of the digitalization of the economy. The rules under the model are designed to ensure large multinational enterprises pay a minimum level of tax on the income arising in each jurisdiction where they operate. The rules also include transitional safe harbors which provide temporary exemption of operations in some jurisdictions if certain criteria are met. Some jurisdictions in which Seaboard operates enacted Pillar Two legislation effective in 2024, but the impact will not be material to Seaboard in 2024. Seaboard will continue to monitor legislative developments across relevant jurisdictions and the potential impact on future results.

Cash Flows from Operating Activities

Cash provided by operating activities increased $34 million for the year ended December 31, 2023, compared to the same period in 2022. Seaboard’s net earnings, adjusted for non-cash items, decreased $642 million, but Seaboard had positive cash flow from changes in certain assets and liabilities of $615 million including positive working capital cash flow changes of $526 million. The working capital changes primarily reflected a decrease in accounts receivable due to lower revenues, a decrease in inventories due to lower commodity prices, and a decrease in accounts payable due to timing of payments on purchases. Cash flows from dividends received from affiliates increased $77 million primarily related to distributions received from Butterball.

During 2023, Seaboard paid $30 million to settle a contingent consideration liability related to a 2018 acquisition; cash flows from financing activities include $14 million recognized at the 2018 acquisition date and cash flows from operating activities include $16 million, which is the settlement amount in excess of the liability amount recognized at the acquisition date.

Capital Expenditures, Acquisitions and Other Investing Activities

During 2023, Seaboard invested $506 million in property, plant and equipment, of which $361 million was in the Pork segment and $121 million was in the Marine segment. The Pork segment expenditures were primarily to fund renewable biogas recovery projects and maintenance and investment of the renewable diesel plant. At certain hog farms, the Pork segment is constructing renewable biogas recovery facilities to capture methane from its hog lagoons and inject it as renewable natural gas into the local pipeline infrastructure. The Marine segment expenditures primarily related to the purchase of a used vessel, deposits and installment payments on dual-fuel vessels under construction and the funding of other investments.

The total budget for 2024 capital expenditures is approximately $555 million, with $293 million planned in the Pork segment and $206 million in the Marine segment. The Pork segment’s budget primarily includes normal replacement of breeding herd, completion of certain renewable biogas recovery projects, and other investments. The Marine segment’s budget primarily includes continued installment payments on eight vessels under construction. The payments for these vessels are made in accordance with milestones achieved throughout construction. Three vessels are expected to be

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complete in 2024 and five vessels are expected to be complete in 2025. As of December 31, 2023, long-term capital expenditure cash requirements for these vessels are approximated to be $173 million in 2024 and $169 million in 2025. Management anticipates funding the capital expenditures from a combination of available cash, the use of available short-term investments and Seaboard’s available borrowing capacity.

Seaboard acquired businesses in 2022 and 2021 and intends to continue to look for opportunities to further grow and diversify its operations, but there are no definitive plans for additional acquisitions at this time. Management intends to utilize existing liquidity, available borrowing capacity and other financing alternatives to fund these opportunities. The terms and availability of such financing may be impacted by economic and financial market conditions, as well as Seaboard's financial condition and results of operations at the time Seaboard seeks such financing, and there can be no assurances that Seaboard will be able to obtain such financing on terms that will be acceptable or advantageous.

From time to time, proceeds from the sale of short-term investments may be used to fund capital expenditure purchases, working capital needs or other requirements. For the stock repurchase transaction in 2023, Seaboard sold equity securities and purchased money market funds held in trading accounts. Included in the $2 billion of gross cash flows related to the sale and purchase of short-term investments for 2021 was asset reallocation intended to reduce equity exposure.

Seaboard continues to make long-term investments with $16 million, $117 million and $98 million invested during the years ended December 31, 2023, 2022 and 2021, respectively. As of December 31, 2023, Seaboard is committed to invest approximately $11 million in certain long-term investments in 2024, primarily real-estate related. Seaboard may also fund capital calls and issue borrowings for its equity method investments based on specific facts and circumstances.

Financing Activities

Cash flows from financing activities primarily include draws and repayments on lines of credit. Seaboard’s lines of credit are used to fund working capital and investments in capital expenditures, as needed. During 2023 and 2022, there was a high volume of draws and repayment activity under lines of credit with the draws used to fund working capital and greater investments in capital expenditures. Seaboard had long-term debt of $1.0 billion as of December 31, 2023, which includes a Term Loan due 2033 of $973 million. Current maturities of long-term debt were $11 million as of December 31, 2023. During the fourth quarter of 2023, Seaboard refinanced its long-term debt to increase the principal amount and extend the maturity date. Seaboard received proceeds of $307 million, net of fees, upon closing of the refinancing. See Note 7 to the consolidated financial statements for further discussion of debt.

As previously disclosed, on October 9, 2023, Seaboard entered into three Stock Repurchase Agreements (the “Repurchase Agreements”) with the following three separate counterparties: Seaboard Flour LLC, SFC Preferred, LLC and REP23 LLC (collectively, the “Sellers”). The Sellers are entities affiliated with Ellen S. Bresky, the Chairwoman of Seaboard’s Board of Directors, or other members of the Bresky family (collectively, the “Bresky Group”). The repurchases were proposed by the Sellers in July 2023 to facilitate certain internal family planning and structuring objectives. On October 10, 2023, the closings under the Repurchase Agreements occurred pursuant to which Seaboard repurchased an aggregate of 189,724 shares (the “Shares”) of its common stock, $1.00 par value per share (“Common Stock”), from the Sellers at a purchase price of $3,162.50 per share, representing a 15.7% discount to the 180-day volume, weighted-average trading price of the Common Stock as of October 6, 2023, a 14.9% discount to the 30-day volume, weighted- average trading price of the Common Stock as of October 6, 2023 and a 13.5% discount to closing price of the Common Stock as of October 6, 2023. Seaboard paid an aggregate purchase price of $600 million for the Shares. The Repurchase Agreements were negotiated and approved by a special committee of Seaboard’s Board of Directors (the “Special Committee”), comprised solely of disinterested, independent directors, including the lead independent director. The Special Committee was advised by independent legal counsel and an independent financial advisor. The Special Committee received an opinion from its independent financial advisor as to the fairness of the consideration paid for the Shares from a financial point of view to Seaboard and stockholders unaffiliated with the Bresky Group. The Special Committee’s grant of authority provided that no repurchase or alternative proposed capital return transaction involving Seaboard and the Bresky Group could be consummated without the prior favorable recommendation of the Special Committee.

Future Contractual Obligations

Other than those obligations discussed above, future obligations mostly include normal operating expenses. For operating and finance leases, Seaboard had a current undiscounted obligation of $192 million and a long-term undiscounted obligation of $492 million as of December 31, 2023, see Note 5 to the consolidated financial statements. The majority of Seaboard’s purchase commitments for materials or supplies are related to hog, grain, feedstock and fuel procurement contracts with a current obligation of approximately $1.5 billion and a long-term obligation of approximately $800 million as of December 31, 2023, see Note 8 to the consolidated financial statements. Also, Seaboard is subject to obligations

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under its existing defined benefit pension plans. As of December 31, 2023, the unfunded status of all plans was $78 million. Anticipated employer payments related to the pension and supplemental executive plans in 2024 are $23 million. For additional information about Seaboard’s pension plans, see Note 9 to the consolidated financial statements.

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RESULTS OF OPERATIONS

Net sales for the years ended December 31, 2023, 2022 and 2021 were $9.6 billion, $11.2 billion and $9.2 billion, respectively. The decrease of $1.6 billion for 2023 compared to 2022 primarily reflected a sales decline of $1.2 billion in the CT&M segment due to lower prices and volumes of commodities sold and a sales decline of $544 million in the Marine segment due to lower cargo volumes and freight rates. The increase in net sales of $2 billion for 2022 compared to 2021 primarily reflected higher prices of commodities sold in the CT&M segment of $1.1 billion, and higher freight rates in the Marine segment of $647 million. See the net sales discussion by reportable segment below for more details.

Operating income (loss) for the years ended December 31, 2023, 2022 and 2021 was ($87) million, $657 million and $458 million, respectively. The decrease of $744 million for 2023 compared to 2022 primarily reflected a decline in operating income of $392 million in the Pork segment due to lower margins on the sale of pork products and market hogs, and a decline in operating income of $363 million in the Marine segment due to lower voyage revenue. The increase in operating income of $199 million for 2022 compared to 2021 primarily reflected an increase of $394 million in the Marine segment due to higher voyage revenue, an increase of $90 million in the CT&M segment due to higher margins on certain commodities, partially offset by lower margins on pork product, market hog and biodiesel sales in the Pork segment which decreased operating income by $323 million. See the operating income discussion by reportable segment below for more details.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses increased $30 million for the year ended December 31, 2023 compared to 2022. The increase was primarily due to higher personnel costs including $7 million for the deferred compensation program and an adjustment of the contingent consideration liability discussed above of $10 million. SG&A expenses for the year ended December 31, 2022 increased $13 million compared to 2021. The increase was primarily the result of higher SG&A with no individually significant items, partially offset by lower costs associated with Seaboard’s deferred compensation program of $7 million. The deferred compensation program costs are offset by the effect of the mark-to-market on investments recorded in other investment income (loss), net.

Interest Expense

Interest expense increased $18 million for the year ended December 31, 2023 compared to 2022. The increase in interest expense was primarily due to higher interest rates on outstanding debt, partially offset by an increase of $13 million in capitalized interest on construction in progress. Interest expense increased $27 million for the year ended December 31, 2022 compared to 2021. The increase primarily related to higher interest rates on outstanding debt.

Interest Income

Interest income increased $30 million for the year ended December 31, 2023 compared to 2022 and $10 million for the year ended December 31, 2022 compared to 2021. The increase was primarily due to higher interest rates on debt securities.

Other Investment Income (Loss), Net

Other investment income, net increased $324 million for the year ended December 31, 2023 compared to 2022. The increase was primarily due to unrealized mark-to-market gains on short-term investments and a $46 million charge recorded during 2022 related to a long-term solar energy investment. Other investment income, net decreased $372 million for the year ended December 31, 2022 compared to 2021. The decrease primarily reflected mark-to-market losses on short-term investments and the $46 million charge noted above. The charge on this long-term investment was offset with the benefit of the investment tax credits recorded in income tax benefit (expense).

Foreign Currency Gains (Losses), Net

Foreign currency gains, net decreased $9 million for the year ended December 31, 2023 compared to 2022. The decrease was primarily due to fluctuations in the Zambian kwacha, among fluctuations of other currency exchange rates in several foreign countries. Foreign currency gains, net decreased $11 million for the year ended December 31, 2022 compared to 2021. The decrease primarily reflected fluctuations in the euro, among fluctuations of other currency exchange rates in several foreign countries.

Income Tax Benefit (Expense)

The 2023 effective tax rate was lower than the 2022 effective tax rate primarily due to lower earnings, more federal tax credits and a larger state tax benefit due to higher domestic losses. The 2022 effective tax rate was lower than the 2021

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effective tax rate primarily due to an increase in federal investment tax credits available in 2022 and a change in the mix of foreign and domestic earnings, with foreign earnings generally taxed at lower rates. See Note 12 to the consolidated financial statements for further information on Seaboard’s income taxes.

Segment Results

See Note 13 to the consolidated financial statements for a reconciliation of net sales and operating income by reportable segment to consolidated net sales and consolidated operating income, respectively.

Pork Segment

Net sales for the Pork segment decreased $89 million for the year ended December 31, 2023 compared to 2022. The change was due to a decrease in sales of $228 million for pork products and market hogs due primarily to lower market prices, partially offset by higher volumes of pork products sold that increased sales $37 million. The decrease was partially offset by a $91 million increase in biodiesel and renewable diesel sales and related credits due primarily to a $276 million increase in volumes sold from the renewable diesel plant in Hugoton, Kansas which began operations in the third quarter of 2022, partially offset by a decrease in prices of $116 million and timing of sales of associated credits of $69 million.

Operating income for the Pork segment decreased $432 million for the year ended December 31, 2023 compared to 2022. The decrease primarily reflected $392 million in lower margins on pork products and market hogs due to lower sales prices and higher hog production costs, including higher feed costs of $98 million, and to a lesser extent, an increase in legal expense, partially offset by a decrease in adjustments to the lower of cost and net realizable value (“LCNRV”) inventory reserve of $41 million. An inventory adjustment has been necessary since the third quarter of 2022 to properly state the hog inventory balances at quoted future market prices for pork products and grain costs. Lower biodiesel and renewable diesel margins related to lower sales prices were partially offset with no mark-to-market derivative contract losses for the period compared to $35 million in 2022. Management is unable to predict market prices for pork products, biodiesel, renewable diesel, or related credits, or the costs of feed, third-party hogs or feedstock for future periods, but based on current market conditions, management anticipates the segment's profitability will be near break-even for 2024. Scheduled maintenance and repairs on the renewable diesel plant began in the fourth quarter of 2023 and will not be completed until early 2024, and as a result, renewable diesel operating income for the first quarter of 2024 will be impacted.

Net sales for the Pork segment increased $124 million for the year ended December 31, 2022 compared to 2021. The increase was primarily the result of an increase in biodiesel sales of $146 million related to higher prices and an increase in the sales of associated credits of $107 million. The increases were partially offset by a decrease in volumes of pork products and market hogs sold resulting in a decrease in sales of $113 million.

Operating income for the Pork segment decreased $323 million for the year ended December 31, 2022 compared to 2021. The decrease was primarily due to lower margins on pork product and market hog sales due to higher costs of hogs, including inventory adjustments of $41 million, and higher feed costs of $130 million, biodiesel-related mark-to-market derivative contract losses of $35 million and higher biodiesel and renewable diesel operational costs of $26 million due to feedstock costs and start-up costs at the Hugoton renewable diesel plant.

Income from affiliates increased $21 million for the year ended December 31, 2022 compared to 2021 due to improved results at STF.

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CT&M Segment

Net sales for the CT&M segment decreased $1.2 billion for the year ended December 31, 2023 compared to 2022. The decrease was primarily due to lower average sales prices, which decreased sales $619 million and lower volumes as a result of increased competition and market dynamics, which decreased sales $532 million. Sales prices for many of Seaboard’s products are directly affected by both domestic and worldwide supply and demand for commodities and competing products, all of which are determined by constantly changing market forces.

Operating income for the CT&M segment decreased $6 million for the year ended December 31, 2023 compared to 2022. Margins increased slightly year over year primarily due to lower commodity costs but were offset by the $10 million adjustment to the contingent consideration liability. Due to worldwide commodity price fluctuations, the uncertain political and economic conditions in the countries in which this segment operates and the volatility in the commodity markets, management is unable to predict sales and operating results for this segment for future periods. However, management anticipates positive operating income for this segment in 2024, excluding the effects of marked-to-market adjustments.

Had Seaboard not applied mark-to-market accounting to its derivative instruments, operating income for this segment would have been lower by $6 million and $7 million in 2023 and 2022, respectively, and higher by $7 million in 2021. While management believes its commodity futures, options and foreign exchange contracts are primarily economic hedges of its firm purchase and sales contracts or anticipated sales contracts, Seaboard does not perform the extensive record-keeping required to account for these transactions as hedges for accounting purposes. Accordingly, while the changes in fair value of the derivative instruments were marked to market, the changes in value of the firm purchase or sales contracts were not. As products are delivered to customers, these existing marked-to-market adjustments should be primarily offset by realized margins or losses as revenue is recognized over time; therefore, these marked-to-market adjustments could reverse in fiscal 2024. Management believes eliminating these marked-to-market adjustments provides a more reasonable presentation to compare and evaluate period-to-period financial results for this segment.

Income from affiliates decreased $39 million for the year ended December 31, 2023 compared to 2022. CT&M’s investments in affiliates are represented by numerous milling, feed, protein and trading affiliates, with no individual investment representing a material fluctuation. The decrease was primarily due to several entities challenged with lower margins due to higher costs and competition.

Net sales for the CT&M segment increased $1.1 billion for the year ended December 31, 2022 compared to 2021. The increase primarily reflected higher average sales prices of certain commodities of $1.1 billion.

Operating income for the CT&M segment increased $90 million for the year ended December 31, 2022 compared to 2021. The increase primarily reflected higher margins on certain commodities, costs associated with operational changes recorded in 2021 but not repeated in 2022 of approximately $25 million, and derivative contract gains of $7 million in 2022 related to the change in mark-to-market adjustments compared to losses of $7 million in 2021.

Marine Segment

Net sales for the Marine segment decreased $544 million for the year ended December 31, 2023 compared to 2022. The decrease was primarily due to an overall decline in both cargo volumes and freight rates. Cargo volumes decreased 17% for the year ended 2023 compared to the year ended 2022. The decline in cargo volumes and freight rates is primarily a result of a general decrease in demand for ocean transportation services.

Operating income for the Marine segment decreased $363 million for the year ended December 31, 2023 compared to 2022. The decrease was primarily the result of lower voyage revenue, partially offset by lower voyage-related costs, such as slot costs, fuel costs, terminal services and trucking costs due to the lower cargo volumes, and fuel prices. Management

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cannot predict changes in fuel costs or other voyage-related costs, cargo volumes or cargo rates for future periods; however, management anticipates this segment will be profitable in 2024.

Net sales for the Marine segment increased $647 million for the year ended December 31, 2022 compared to 2021. The increase was primarily the result of higher freight rates.

Operating income for the Marine segment increased $394 million for the year ended December 31, 2022 compared to 2021. The increase was primarily the result of higher voyage revenue, partially offset by higher voyage-related costs, including charter-hire costs, fuel costs and other operational costs primarily due to increased rates.

Sugar and Alcohol Segment

Net sales for the Sugar and Alcohol segment increased $30 million for the year ended December 31, 2023 compared to 2022. Sugar sales increased $20 million due to higher prices related to lower market supply. Alcohol sales increased $10 million due to higher volumes related to strong demand and higher prices primarily associated with governmental price adjustments.

Operating income for the Sugar and Alcohol segment increased $7 million for the year ended December 31, 2023 compared to 2022. The increase primarily reflected higher margins on sugar sales. Higher sugar sales prices were partially offset by higher production costs primarily due to inflationary pressure and foreign exchange volatility. Management cannot predict local sugar and alcohol prices or the volatility in the currency exchange rate for future periods, and management is uncertain whether this segment will be profitable in 2024.

Net sales for the Sugar and Alcohol segment increased $6 million for the year ended December 31, 2022 compared to 2021. Sugar and alcohol sales increased $10 million, partially offset by lower energy production. Higher sales prices were mostly offset by lower volumes of sugar and alcohol sold due to low inventory levels from recent harvests.

Operating income for the Sugar and Alcohol segment increased $9 million for the year ended December 31, 2022 compared to 2021. The increase primarily reflected higher margins on sugar and alcohol sales.

Power Segment

Net sales for the Power segment increased $79 million for the year ended December 31, 2023 compared to 2022. More power generation from EDM III, that began operations in June 2022, contributed to an increase in sales of $60 million. EDM II, the power-generating barge which began operations in 2012, increased its dispatch volume in 2023 primarily due to improved availability of competitively priced fuel.

Operating income for the Power segment increased $57 million for the year ended December 31, 2023 compared to 2022. The increase was due to more revenue generated primarily from EDM III’s operations, partially offset primarily by an increase in fuel costs of $12 million and other costs related to EDM III. Management cannot predict fuel costs or the extent that spot market rates will fluctuate compared to fuel costs or other power producers for future periods; however, management anticipates this segment will be profitable in 2024. While EDM II remains in operation in the Dominican Republic, Seaboard continues to explore strategic alternatives for this barge, including a sale or relocation.

Net sales for the Power segment increased $98 million for the year ended December 31, 2022 compared to 2021. The increase primarily reflected more power generation with EDM III also in operation of $76 million, and to a lesser extent, higher spot market rates of $22 million as a result of higher fuel prices.

Operating income for the Power segment increased $23 million for the year ended December 31, 2022 compared to 2021 primarily due to higher revenues, partially offset by higher fuel and other operational costs due to higher prices.

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Turkey Segment

The Turkey segment, accounted for using the equity method, represents Seaboard’s 52.5% investment in Butterball. Income from affiliate decreased $16 million for the year ended December 31, 2023 compared to 2022 as Butterball’s net income decreased $30 million for the year ended December 31, 2023 compared to 2022. The decrease in net income was primarily the result of income recorded in the prior year related to a $21 million gain on the sale of businesses, and $11 million of mark-to-market gains on interest-rate swap agreements that were terminated in 2022. The decrease was partially offset by higher margins with a stronger mix of value-added products sold and production efficiencies. Volumes sold decreased 7% for the year ended December 31, 2023 compared to 2022. Management is unable to predict market prices for turkey products or the cost of feed for future periods; however, management anticipates this segment will be profitable in 2024.

Income from affiliate increased $123 million for the year ended December 31, 2022 compared to 2021 as Butterball’s net income increased $234 million for the year ended December 31, 2022 compared to 2021. The increase in net income was primarily the result of higher revenues of $258 million, primarily due to higher selling prices and strong markets, and gains on the sale of businesses and interest rate-swap agreements of $32 million, slightly offset by higher feed and plant production costs.

CRITICAL ACCOUNTING ESTIMATES

The preparation of Seaboard’s consolidated financial statements requires Seaboard to make estimates, judgments, and assumptions. See Note 1 to the consolidated financial statements for a discussion of significant accounting policies. Management has identified the accounting estimate believed to be the most important to the portrayal of Seaboard’s financial condition and results of operations, and that requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of inherently uncertain matters. Management has reviewed this critical accounting estimate with the Audit Committee of the Board of Directors.

Accrued Pension Liability – The measurement of Seaboard’s pension liability and related expense is dependent on a variety of assumptions and estimates regarding future events. These assumptions include discount rates, assumed rate of return on plan assets, compensation increases, mortality rates and retirement rates. The discount rate and return on plan assets are important elements of liability and expense measurement and are reviewed on an annual basis. The effect of decreasing both the discount rate and assumed rate of return on plan assets by 50 basis points would have a minimal impact on pension expense. The effects of actual results differing from the assumptions (i.e. gains or losses) are primarily accumulated in accrued pension liability and amortized over future periods, if it exceeds the 10% corridor and therefore, could affect Seaboard’s recognized pension expense in such future periods as permitted under generally accepted accounting principles (“GAAP”). See Note 9 to the consolidated financial statements for discussion of the pension rates and assumptions.

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