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Executives

Todd Becker - President & CEO

Jeff Briggs - COO

Jerry Peters - CFO

Steve Bleyl - EVP, Ethanol Marketing

Jim Stark - VP, Investor & Media Relations

Analysts

Farha Aslam - Stephens, Inc.

Laurence Alexander – Jefferies & Company

Michael Cox – Piper Jaffray

Patrick Jobin - Credit Suisse

Brent Rystrom - Feltl & Company

Aram Fuchs – Fertilemind Capital

A.J. Strasser - Cooper Creek Partners

Green Plains Renewable Energy, Inc. (GPRE) Q4 2012 Earnings Call February 7, 2013 12:00 PM ET

Operator

Good day everyone and welcome to the Green Plains Fourth Quarter and Fiscal Year 2012 Financial Results Conference Call. Today’s call is being recorded. At this time, I would like to turn the call over to Jim Stark. Please go ahead.

Jim Stark

Thanks, Erin. Welcome to our fourth quarter and full-year 2012 earnings conference call. On the call today are Todd Becker, President and CEO; Jerry Peters, our CFO; Jeff Briggs, our Chief Operating Officer and Steve Bleyl, who is our Executive Vice President of Ethanol Marketing. We are here to discuss our quarterly financial and fiscal year results and recent developments for Green Plains Renewable Energy.

There is a slide presentation for you to follow along with as we go through our comments today. You can find that presentation on our website at gpreinc.com. It’s on the Investor page under the Events and Presentations link.

Our comments today will contain forward-looking statements, which are any statements made that are not historical facts. These forward-looking statements are based on the current expectations of Green Plains’ management team, and there can be no assurance that such expectations will prove to be correct. Because forward-looking statements involve risks and uncertainties, Green Plains’ actual results could differ materially from management’s expectations.

Please refer to page two of the website presentation and our 10-K and other periodic SEC filings for information about factors that could cause different outcomes. The information presented today is time sensitive and is accurate only at this time. If any portion of this presentation is rebroadcast, retransmitted or redistributed at a later date, Green Plains will not be reviewing or updating this material.

I would like to turn the call now over to Todd Becker.

Todd Becker

Thanks Jim, and thanks for joining the call this morning. I am going to run down some of the highlights for the fourth quarter and then discuss 2012 overall. I am pleased with our operating performance and results for the quarter. We believe that generating operating income before depreciation of $0.14 per gallon in our ethanol production segment in the current environment reinforces with you that our risk management strategy works and is a very effective practice for commodity processing business like Green Plains. Keep in mind, this was without the additional corn oil operating income earned this quarter as we break that out separately.

When you look at the chart on page five of the presentation online you will see that the average daily spot platform crush was negative $0.07 per gallon during the fourth quarter of 2012. Our team reacted quickly in late 2011 and early 2012 to take advantage of positive margin to out on the forward curve. The difference between this year and the prior was that we originated physical bushels at the same time we would lock the financial margin away. This way we reduced the volatility of that factor.

Our non-ethanol segments generated $17.8 million in operating income and combined with the operating income from the ethanol production and the $47 million gain on the sale of the agribusiness assets, our total segment operating income was approximately $77 million in the fourth quarter before corporate expenses.

Revenues in the fourth quarter of 2012 were $884 million and we reported a net income before the gain on the sale of the 12 grain elevators of $6.7 million or $0.21 a share. We weren’t just profitable in the fourth quarter, but combined with the third, we are profitable in the last half of 2012, probably one of the roughest patches in the history of this industry.

We produced a 168 million gallons of ethanol in the fourth quarter which is approximately 91% of our stated operating capacity. All of our plants are running and to contrast that to the ethanol industry, over 2 billion gallons of industry capacity is offline. Our ethanol yield in the quarter was 2.81 gallons of ethanol per bushel of corn which was down mainly due to new crop quality factors. We are seeing better yield as we move further away from these harvest bushels.

Our yield for corn oil production was 0.61 pounds per bushel in the quarter. We managed as closely so not to degregate our high quality distillers grains that we sell to our customers. Both our internal technology that was installed and the ICM technology continue to performance very well, but again we believe the yield should hold at least this level for 2013.

Our rail car redeployment to transport crude oil hit our target in the fourth quarter with over 500 cars in service and $4.3 million of operating income; we should see this run rate hold at least for the end of September as we are working on extending this program through the end of 2013 and beyond. We began our loading unit trains at our BlendStar terminal in Birmingham, Alabama this quarter. Our initial customer response has been strong at this terminal and we are evaluating similar opportunities at our other terminal locations. So between corn oil production and our marketing and distribution segment, we expect non-ethanol operating income to remain at approximately $60 million in 2013. The agribusiness segment will have a small operating income during the harvest quarter of ‘13 as well.

Selling our 12 grain elevators in the associated agronomy and petroleum business significantly improved our balance sheet as we ended the year with $280 million in cash. The timing of the closing our decision to retain over $50 million of corn inventories at these elevators for our internal use actually resulted in an increase in our grain revolver at the end of 2012. We are still holding corn purchased in the fall in our agribusiness credit lines even though we don’t own the elevators anymore and as we work through this inventory over the coming months at our ethanol plants, the revolver for the agribusiness segment should be reduced throughout the quarter.

I would note that our ethanol plant debt per gallon is at the lowest point that has been in our history at $0.54 per gallon and net debt per gallon is even much lower. At the end of 2008 we were at $0.90 per gallon of plant debt to give you perspective.

Overall, 2012 did not start out in a positive manner for our company or for the industry, but as we move through the year margin management, keeping cost low, operating our plants safely and efficiently and finding other income generating opportunities contributed to our ability to offset the negative trends in the ethanol industry.

Now I am going to turn the call over to Jerry to discuss our liquidity and financials in more detail and then I will come back later in the call.

Jerry Peters

Thanks Todd good morning everyone. We are pleased to have finished 2012 with a solid performance in the fourth quarter. On a consolidated basis, our revenues were $884 million for the quarter, down about 4% when compared to the fourth quarter of 2011. The decrease is related to lower average prices for ethanol as well as corn oil that was sold during the quarter and a slight decrease in ethanol volumes sold compared to last year’s fourth quarter.

Sales of ethanol from our own production facilities decreased by about 7%, but that was a largely offset by increased trading and ramp volumes we completed. With better margins in the fourth quarter versus the third, we increased our production rate from approximately 87% to 91% of expected operating capacity in Q4. Currently, depending on forward margins, we expect to run our facilities at around 88% or 89% of operating capacity in the first quarter of 2013.

If you take a look at slide four, we generated operating income before depreciation of $0.14 per gallon compared to $0.18 per gallon realized in the fourth quarter of 2011. Using this measure, we have reported positive ethanol operating income before depreciation for each of the four quarters of 2012. And as Todd mentioned, its important to note that these amounts do not include our operating income from corn oil which has averaged almost $0.05 per ethanol gallon produced over this time period. We believe this demonstrates the effectiveness of our team’s ability to manage production costs as well as ethanol risks.

Corn oil production operating income was down about 20% from the fourth quarter of 2011 as average corn oil prices decreased 14% and the segments in-put costs increased due to higher storage grain values which are base to our ethanol production business anyway. Looking forward, we should see similar production levels and conversion rates for 2013 and prices for corn oil have firmed up some at the start of this year.

The fourth quarter for agribusiness segment was a transition quarter for us. Revenues were down $20 million or 12% over last year, mainly due to completing the sale of the 12 grain elevators in early December. With the transaction, we chose to reduce our normal grain sales activity during the quarter and instead transfer inventories to the buyer at closing. These transfers totaling about a $110 million were made at market value but are not reported in our sales figure for the quarter.

We also decided to retain nearly 7 million bushels of corn or about $50 million at our Tennessee locations which is obviously not included in the inventory transfer figure I just mentioned. We plan to move these bushels into our Obion plant over the coming four or five months.

The marketing and distribution segment reported operating income for the fourth quarter of 2012 of $6.7 million compared to $2.4 million last year. The increase between the periods is mainly due to our rail car initiative, with a small contribution from the Birmingham unit train terminal which began operations in December.

Our income tax expense rose to $26.1 million for the quarter, the effective tax rate increase for the quarter which also impacted the tax rate for the full year as a result of adjustments in state tax rates and state tax credits. With a lower business activity in Iowa going forward, we provided a valuation allowance against some Iowa investment tax credit carryforwards.

Our business activity was heavily driven by where our sales occur has shifted to higher tax states causing our rates to move up slightly going forward. We estimated combined rate of 38.5% for 2013.

Earnings before interest, income taxes, depreciation and amortization or EBITDA was $80.8 million for the fourth quarter of 2012 compared to $45.2 million in the fourth quarter of last year.

On a trailing 12 months basis, EBITDA totaled approximately $115.5 million. Our liquidity and overall balance sheet positions are the best they have been in our history. Total cash increased $120 million during the fourth quarter to end at $280 million in 2012. Most of that was due to realizing net proceeds from the agro business sale of about $118 million.

In addition, the buyer assumed $27.8 million of term debt and as I said earlier, we retained $50 million of inventory at these locations. So all totaled, once the retained inventory is realized, the sale resulted in nearly a $200 million swing on our balance sheet.

We also continue to repay our ethanol term debt with $11.6 million of reductions in the quarter from our ongoing operations. As of December 31, our total ethanol debt was just under $400 million or $0.54 per gallon. As a result of the progress we've made on our debt levels, we have pushed our total ethanol debt service down to about $0.09 per gallon from $0.10 previously.

We are also working on a variety of new lending arrangements to improve our working capital funding and further enhance our capital structure going forward.

Capital expenditures were approximately $4.4 million for the fourth quarter and totaled $28 million for the full year with the Birmingham unit train project representing the most significant single project in that total.

Currently, we are planning approximately $10 million to $12 million of capital expenditures for 2013, not including our strategic plans to expand grain storage capacity at our ethanol plants.

In summary, we are pleased to have closed out 2012 on a positive note and believe we are well positioned for what should be a very interesting 2013.

Now, I would like to turn the call back over to Todd.

Todd Becker

Thanks Jerry. And as I mentioned earlier, there is a significant amount of capacity that's offline according to the latest EIA data. The gap in ethanol production versus the mandate has led to a better margin environment in early 2013 albeit still very much below historical levels.

Brazil imports have impacted our market quite dramatically over the last several months. We are starting to see a slowing of the activity as of late. It is a situation where we're watching closely and this happens to be a loophole in our renewable fuel standard that needs to be addressed. The current margin environment remains sluggish where we are seeing slightly positive margins in the first quarter for our platform and improving margins in the fourth quarter 2013.

We currently have minimal forward margins locked away for the rest of the year because of the volatility of US corn basis; it is difficult to make a decision to lock the financial crush away without real bushels in the mix.

Ethanol currently at a $0.60 to $0.70 per gallon discount for wholesale gasoline through all of 2013 and I believe it remains that there is no better more economical source of octane and oxygenate available today than ethanol.

Growth energy, our trade organization has a long list of retailers that are in process to add E15 to the fuel mix over the next year. We have multiple growth initiatives for the next three years that I wanted to discuss today.

The first is to update you on BioProcess Algae and our progress on the build and project product development. We embarked on five acre build of what we called phase III. On finalizing that project, we decided only to build two of those acres which include two 200 foot reactors and two 400 foot reactors. That was a good decision as current off take demand exceeded phase III. So we needed to start on phase IV to meet those needs.

We've decided to expand the footprint in phase IV and build 10 additional 400 foot reactors which are in final engineering and procurement phase and expect the completion of those will be late at this year. When completed, our total capacity will be between 350 and 400 tonnes of dry wholesale algae or approximately 1 ton per day.

We will transition to processing on site as well instead of toll processing for some of our needs. There are multiple initiatives underway with various large strategic oil and feed companies. We have joint development agreements both in place and under a development.

One of these is focused on growing material for testing of various extraction technologies. In addition, we are working on high value protein replacements for animal feed along several different verticals expanding on our testing from last year at the University of Illinois.

We also have several continuing initiatives within the nutraceutical sectors. Finally, we have agricultural trials underway as we feel this is our fastest path to market for high value commodities into insatiable demand sectors which would lead to profitability of our farms.

BioProcess Algae continues to work on expanding strategic relationships and the phase four continues to meet our expectations. We may begin the next build out of 40 to 50 acres in Shenandoah late this year or early next.

The next major initiative we shared in our earnings release. We have started to expand our grain storage at or near our ethanol plants by 5 million to 10 million bushels per year for at least the next two years. We believe that with a minimal capital investment at these location, we can benefit by purchasing corn directly out of the farmers field.

We currently have 11 million bushels of storage at our ethanol plants and 6 million bushels of storage at three grain elevators. With the addition of this within the Green Plains grain business structure; we believe we can recreate the earning stream at a fraction of the cost of what we recently divested.

Let’s take just a few minutes to give you an overview of what we are doing. Currently, Green Plains’ process is approximately 7 million tonnes of corn at our nine plants. Last year, we tested the strategy at three of our locations where we added a million bushels each in Indiana, Michigan and Minnesota. This was a great success as we originated first handle harvest bushels that we were able to segregate and capture what normally is reserved for commercial grain companies at a much lower operating cost by the way.

In addition, we did that at well below $1 per bushel of capital cost and leveraged out the plant’s infrastructure of road, scales and people. We now planned to roll this out broadly across the platform and give you any example by harvest of this year, it help to add an additional 10 million bushels at multiple locations. This will be separately within the agro business segment. In some of our locations where we will use this additional storage to potentially service non-company demand as well as when applicable.

We are excited about this program. We feel we can create great value while using our internal demand to go further up stream around all of our plants.

Finally, another major initiative that we embarked on has been discussed over the last several years, it start to finally monetize our trade flows in and out of our ethanol plants, require hiring between 10 and 20 physical cross country grain traders and marketers to leverage our logistics infrastructure.

We currently have several new traders in place and I have seen good returns for what motivated us to grow faster. The risk profile is very low and the balance sheet impact is minimal. So has an example, we dump a thousand trucks of corn everyday and average across our platforms and load out 45,000 trucks of distillery grains per year. Up until now, we never focused on when the truck becomes empty on either side and use that freight to our advantage which is really the key point going forward under this new initiative.

So in summary, we have major initiatives to continue to derisk the ethanol segment much likely we have done over last several years as we have grown non-ethanol operating income to over $60 million. This is a continuation of the strategy and we feel like we can control more pieces of the value chain that lots of other companies make money around the businesses that we owned and operate.

Our operations have never been better whether it is from mechanical improvements like fine grinder, trailing new enzymes; we know that every 0.01 improvement in the yield generates an additional $5 million of operating income annually.

Other initiatives we have for the coming year are around continuing to lower our energy usage per gallon of production and increase our yield on the storage grains. We certainly are not sitting idle waiting for better times in the industry. We are focused on continuous improvement and processing the raw commodities we handle and driving more income to the bottom line. We continue to work on ways to unlock the value of the assets for the company.

As we have demonstrated in the fourth quarter of 2012 with the sale of the grain elevators, we are not shy of making bold moves that benefit shareholders value. And with this sale, we now have generated four profitable years in a row, the sale has put us in a strong liquidity position, to start 2013 and I feel that we are in a solid position to grow and create more value for our shareholders and stakeholders.

Thanks for calling in today I'll ask Erin if she wants to start the question-and-answer session.

Question-and-Answer Session

Operator

(Operator Instructions) And we will go first to Farha Aslam of Stephens, Inc.

Farha Aslam - Stephens, Inc.

Can you just comment on the supply-demand dynamics in the ethanol industry? We've heard a lot of plants being taken offline, how long do you think its going to take for that inventory of ethanol to be worked down.

Todd Becker

Well, yesterday’s EIA report showed inventory coming down a little bit with production somewhat steady. But the big part of the yesterday’s report was Brazilian imports were down to zero last week. We haven't seen that for a while, we’ll have to wait and see if that is a trend or if that's a one week event. With that said, we are starting to see margins come up a little bit in the first quarter to positive EBITDA levels, low to mid-single digits, but we also are starting to hear plants thinking about coming back online. So it’s going to be one of those interesting times where you look out on a curve and it doesn't give you a lot of reasons to bring up a lot of capacity but the spot market might give a reason for guidance to try and take advantage optimistically of what the margin is even though its still much lower than historical. So I think the key thing we are going to continue to watch are the weekly stock and so we can get some stock straws and that will kind of, that should at that point tell us whether this is a sustainable upturn or whether we are kind of done what we needed to do for a little while to at least deal with the fact that we are producing significantly below mandate.

Farha Aslam - Stephens, Inc.

And the second question is on Brazilian increase in blend, how do you think that increase in the Brazilian blend rate impacts imports in the US ethanol.

Todd Becker

I think its great, I think at least through what will be their next harvest, if we can get some of their excess capacity to go into the increased blends there, we think that's favorable as well. There's still going to be a need for their gallons against some of the advanced mandate needs, but in general we would view that as a positive overall. Again we need to see that happen, but from what I'm hearing the odds are very high.

Farha Aslam - Stephens, Inc.

And the final question is really on basis, we've heard basis levels are up considerably year-over-year. Could you just give us kind of what your basis inflation is that you've been experiencing and kind of your ability to lock in basis going on to the rest of the year and if you are able to lock in any margin for the fourth quarter.

Todd Becker

Yeah, so basis levels in general across the platform, I would say are marginally higher than last year. But the interesting thing is if you take Nebraska 30 or 35 over, there's still a positive EBITDA margin associated with that. So I think relatively speaking, we are seeing some basis inflation. In the eastern corn belt though necessarily we don’t see that up a lot. In the end, it's so much steady the last year, Tennessee is somewhat steady the last year, and Iowa in the kind of mid 15 to 20 over type market is not that dissimilar as well, the base is really as we came in to this time last year.

When you look at our ability to lock or purchase basis corn, we're obviously coming in to second quarter where the farmers are going to plant some corn, we have been working on coverage there. We don’t discuss necessarily what we have on, but needless to say, we don’t believe we will have any large impact to production from inability to originate corn at this point. When we go out to the fourth quarter, if you look at the fourth quarter today, basis levels are very undefined. If we do roll a big crop, we can get back down to historical basis level, then we have bought some down their margins are in the mid to low teens. So we're obviously trying to get some corn basis on us out in the fourth quarter to lock margins away, but that is proving to be more elusive than some year and the farmers are waiting to see what he plants, does he gets the acres in to grow a crop and then at that point, I think we will see some movement.

We're obviously setting ourselves up though with the additional 10 million space that we're expecting we will see movement, and whether historical levels, or above historical levels, we definitely want to get control of more corn than we typically would have in our system, especially with being divested from our grain asset.

Operator

We will go next to Laurence Alexander of Jefferies.

Jeffrey Schnell

This is Jeff for Laurence. I know, you briefly mentioned CapEx. Can you talk about your CapEx plans for the next couple of years? Do you expect them to stay relatively steady and how do you intend to allocate it and also are the cost of the agri-business assets increasing?

Todd Becker

Well in terms of the CapEx we talked a little about what our normal CapEx is. Jerry had talked about that its about a penny, penny and half a gallon and then and that’s a lot of that still is around continuous improvement and what we do trying to get more out of the corn kernel, more yields, low energy costs those types of things. Additional CapEx around the grain assets, we expect that that will be said 5 to 10 million bushels per year, and I think if you equate sub one dollar per bushel of that as we build the internal storage I think that’s a good number. In terms of grain storage overall, we don’t believe that we will see any big opportunities to acquire outside storage as we just sold some, so obviously we don’t anticipate we are going to get right back into buying a bunch of grain elevators at the levels that we sold at. So in general though we should be somewhat steady from these numbers typical penny to penny and a half on average yearly needs and after that it just depends on what we buy or what we build.

Operator

And we will go to Brett Wong of Piper Jaffray.

Brett Wong

Again some discussions about increased blending in other international markets, can you just talk about how you see that impacting the North American market?

Todd Becker

Yeah I will tell you we have seen a rise in enquiries for our product to be exported out of the US. Much more than we saw probably for the last six months. Steve you want to comment a little bit on that of what you are seeing.

Steve Bleyl

Across the world different markets Far East type markets are looking at increased blending rates. So we are seeing that piece and the European piece we are trying to look at it as a piece in the Brazil still is that going to play out as goes forward and then the increased areas mostly foreign still.

Todd Becker

And I think what’s going to be interesting Brett is that when you look at the curve for ethanol in the US it’s discounted as we go out on the curve, and if you look at the curve for ethanol and Brazil it’s at a carry, and we go on the curve. So that diverging in the third quarter where we will have the cheap product in the world ethanol and Brazil could have the high price product in the world, and how that translates in to different trade flows should at least be somewhat positive to that third quarter depending on really what our run rates in the US and I think that something we are going to watch very closely. There is an opportunity that we return as a pretty heavy exporter kind of late second quarter early third quarter to the world.

Brett Wong

And then just with the prolonged lead margin environment are you seeing any increase in willing sellers for ethanol at this stage?

Todd Becker

So interestingly enough no. When you came out of the fourth quarter of 2011 anybody that was in the spot market bought themselves a lot of time, because the spot market was still robust, and while they will see cash burn in the first half of ‘12, it was easily not, it was not as much as the cash earned in 2011 laid.

What we saw recently our two sales that we saw made a private sales, one that we estimate in the $1.10 a gallon range and one that we estimate greater than $1.25 a gallon. There is a disconnect between the private and public market valuations for ethanol plans and the main reason for is that we are seeing, as obviously the one up our plans are trading at pretty good levels and what’s driving that, I think is really the unavailability of good plant and good location with good technology, and if you look at the two plants that traded one of the 50 million gallon Fagen/ICM or one of the 100 and 10 or 20 million gallon Fagen/ICM plant; those were great plants in good locations and that's why they traded good prices. If you want to buy the opposite end of the spectrum, you could buy all you wanted significantly keep the prices, but if you want to buy good plants in good locations like ours or like anybody else’s they are really not for sale and those go at a higher level. So today we are not actively seeing at any reduced prices good plants in good locations but you can certainly buy the other end of the spectrum.

Operator

(Operator Instructions) And we will go to Patrick Jobin of Credit Suisse.

Patrick Jobin - Credit Suisse

So I guess just looking at demand for 2013 I guess on one side the mandate is increasing but on the other side you have some potential access RINs from carry forward ability and I guess how much of the margin improvement outlook is predicated on exports returning or is it more of a function of blenders seeing the relative discount of ethanol and the need for octane?

Todd Becker

Yeah, I think it’s a little bit of everything that you just mentioned, so exports, we continue to see good, you know, we continue to see demand for our product. We are producing at about 12 two-ish run rate or lower against the 13.8 mandate; we expect Brazilian imports to be somewhere around 500 million to 600 million gallons and then there's a RIN balance that can either take care of the rest or we can make more ethanol or both. And we saw an increase in RINs here recently which then have people to think about the value of the D5 versus the D6 RIN against each other and whether they should use corn based ethanol or they should buy the D6 RIN or D5, the sugar RIN and use corn based ethanol.

And so all of those are playing into, a little bit playing into a better environment, but I think the big thing is really when you look at the A data from last week, we are producing at a 7.74 rate per day against a 13.8 mandate with no exports and a bit of a stocks draw and I think that's really the key factor. I think the RINs market has been quite interesting. It ran up from basically a nickel to $0.35 at the highs or so for the corn based RIN and that's certainly interesting, but you can make more money blending ethanol. So that's why we've kind of seen the demand pick up as well for ethanol and guys that, don’t shouldn’t really be buying a corn based RIN they should just buy the product.

Patrick Jobin - Credit Suisse

And I guess do you think that that has encouraged more adoption of E15 or is that, I know that the relative discount was the bottleneck for a certain period of time, is that changed and then just a housekeeping item on Q1 utilization, sorry I didn't catch that in the script?

Todd Becker

Okay. First of all, in terms of E15 we are seeing a lot of retailers, more independent one, two, three off type guys maybe 10 store guys that are willing to look at it as the discount widens. I think a key factor will be as we grow our crop in the US and you can see the pressure on new crop corn and the discount widen to gasoline, if we actually grow a crop on large acres or large yield and that discount continues to widen and corn continues to go down, you will see an economic incentive that people will have to seriously look at increasing blend, because at $0.30 or $0.40 its not that interesting at a discount gasoline, but at $1 to $1.20 it becomes much more interesting. We are seeing a lot of retailers gearing up for, its interesting how gasoline retailers start to think of our corn harvest now and gearing up around large corn harvests, large discount to gasoline and taking advantage of the $1 to $1.20 potential discount to gasoline in the forward markets that we grow our corn crop. The housekeeping items in terms of capacity utilization, we expect it to be very similar to 2012 Q4.

Patrick Jobin - Credit Suisse

Okay. At a low digit margin or what was the color, I mean.

Todd Becker

We didn’t give any guidance except to say that, you know, margins. Margins, let me give you a perspective. The daily, we always talk about kind of the daily average crush. The daily average crush across quarter-to-date during the quarter is like minus $0.07 a gallon. That’s daily average. Even though we've seen the crush come up for February and March. The February and March crush now are in low single-digits to mid single-digits, depending on the plant and the March crush reflects that as well. But if you kind of lock in January in the spot, you obviously lock that in, potentially negative margins and then you start to lock in February and March a little bit more positive. Overall, I think we have a chance to return to a positive EBITDA environment. We are just making sure that we can originate all the corn and take care of all the crush and put the rest on, but in general, in relative terms, it's not as good as Q4 of ‘12, because we walked it all way early but it looks like it's getting better than any of the time last year.

Operator

We will take our next question from Brent Rystrom of Feltl & Company.

Brent Rystrom - Feltl & Company

A quick follow-up, on the sugarcane, Brazil, sugarcane crop is a topic. So probably not the anticipation there is kind of the beginning of a four, five year cycle, based on the new plant of sugarcane production rebounding and eventually surpassing a record from a few years back. How do you think about that from the prospect of your business, particularly when you look at the price of sugar, which is going to favor a lot of ethanol production; probably a bigger shift in the change of the mandate or blend they will require, any thoughts on that?

Todd Becker

Yeah we are starting to see in Brazil plants shift when they can if they can do it early shift from the 60-40 sugar ethanol blend to the 60-40 ethanol sugar blend if they can do it. They are certainly getting paid to do that. The 25% obviously the increase in gas prices should lead to the increase in the mandate for ethanol and hopefully at least for the next kind of 12 to 18 months that excess sugar should take care of their own internal demand over the short-term.

Over the long-term when we look at it we look at the RIN balances and the potential negative RIN balance at the end of ’14. So, at the end of ’14, you look at kind of increasing mandates. We need to get E15 implementation kind of rolling here late ‘13 and ‘14 because when you kind of look at what the mandate is against E10 and potentially if you get the E11 and E12 we will actually need some excess sugarcane in here and still have negative RIN balances.

So I think what we are focused on is kind of next 12 to 18 months longer term than that if Brazil continues to raise big sugar crops and we continue to raise big corn crops, if we can kind of get back in that cycle as well. I think both those would move in tandem and I don't necessarily know that the spread would change very much on the go forward. What's interesting now as the spread is actually changing more in the favor of corn in the fourth quarter as the current market price in the sugar market somewhat remains somewhat steady.

Brent Rystrom - Feltl & Company

Two quick follow-ups or two separate questions that goes on kind of the same topic. Can you help us how to think constructively on how will be green storage facilities to how that might flow through the income statement? And then the same thing on the trucks, if you are looking to kind of backfill these trucks, I am assuming that's part of what you are talking about, how might you think about that from a model perspective? Thanks.

Todd Becker

So our goal is to build 25 million bushels of storage over the next couple of year’s additional storage. We believe that CapEx will be some $1 per gallon the way that we have designed it, I am sorry for bushel per gallon to high to lower. So $1 for bushel, we have the designs, and ready to go instructions are started at some of our plants and we are in deep design stages, we think we can get it done over couple of year period.

We believe the first kind of grain margin is kind of somewhere 35% to 40% bushel kind of across the platform which we can realize and if we can get that on 25 million bushels over two to three year period of growth, we would then recreate that type of cash flows. The great about those income streams that they come at a very low operating cost in relation to what we used to have at Green Plains Grains which was employing over 100 people to do some of the same volume.

So low operating cost, low CapEx cost, we think we will be a low cost operator in the industry. We will buck up a little bit our run origination and farmer programs, we really go after that first kind of margin, but that experiment continues to work which we think it will, we might expand even further and faster. So we think that is the opportunity around space over next couple of years as we grow 5 million to 10 million bushels per year of space.

In terms of the trucking opportunity, we believe that we can grow that into a $10 million to $20 million opportunity for our company. You still, I wouldn/y mark it to the bottom line just yet but that's the kind of opportunity we see. We see the ability to leverage our transportation flows that we never have in the past and other companies have.

With the amount of trucks that we are flowing around the US, we believe that we can take advantage of that. We have got traders in place today, we got programs in place and we are actively seeking more and more programs. We think what we offer is very unique because we have all of this flow that we've never taken advantage of and also this demand that we can cue off of.

So that will all start to flow through market and distribution or the agribusiness segment we think over the next couple of years but when you look at it a brand I think what's important is we are up to around $60 million of non-ethanol operating income. If we can get up to $80 million of non-ethanol operating income which is our goal here then we can service all of our debt at zero ethanol margin and that's kind of what we've always kind of focused on.

Brent Rystrom - Feltl & Company

Great and then $10 million to $20 million would that be basically pretty close to the operating contributions what you are seeing or would that be the revenue amount?

Todd Becker

That would be the operating contribution.

Brent Rystrom - Feltl & Company

And then…

Todd Becker

That's our goal of the business. That's our goal of the business again we are working early stages of it. So I don't think of…

Brent Rystrom - Feltl & Company

On the grain storage side, you would be talking another $10 million in operating profit?

Todd Becker

That's our goal of that segment, that is correct, you are right.

Operator

And we will go next to Ellen Mel of Imperial Capital.

Ellen Mel

So just a question on the cash, the $280 million does most of that reside outside of the ethanol operating company?

Todd Becker

Yeah, right now over $100 million is sitting outside. We still have cash to repatriate that sitting in the grain company. We haven't repatriated all the money out because we are using that to help finance some of the, we use it to have the ability to draw on the old lines, once we work through our ethanol inventory, we are reworking our agribusiness lines as we speak and we will be able to repatriate the large amount of that cash back to corporate, we expect corporate cash to raise into $150 million to $160 million, Jerry?

Jerry Peters

Right, today we are at about $100 million in corporate and we expect another $50 million to $60 million coming from the grain company.

Todd Becker

Right and the rest will be either in our trade group, our market and distribution, we have cash sitting there, which really at the end of day supports the revolvers that we have, but could be repatriated if needed at some point in the future and then the rest to sit in ethanol plants. At the end of the quarter we had $50 million or so cash sitting in our ethanol plants.

Jerry Peters

Yeah probably a little bit more, yeah.

Operator

And we will go to A.J. Strasser - Cooper Creek Partners

A.J. Strasser - Cooper Creek Partners

So first up great quarter, excellent execution. I wanted to maybe dig in a little bit to in your outlook on EBITDA per gallon margins for the ethanol industry in kind of beginning in ’13. You guys mentioned you are seeing I think for the industry low-single digit, mid-single digit type EBITDA margins, is that for the industry.

Todd Becker

We don't know really what the rest of the industry is seeing. We have some plants that are still negative and we have some plants that are positive and in general they all average into that rate. So it depends where you plant is, what the location is, where the corn bases is on general, we are starting to see some of those numbers. But it falls off again quickly into April and May back into negative EBITDA margins. So we have to wait and see the curve develop, and we are talking about a 30 to 60 kind of thing. April we are starting to see some positive directional trade and we will wait and see if we haven’t locked anything in really that's kind of March 10 or so.

So we are kind of locked in through February and then part of March and we are continuing to lock in March as we speak. Obviously if it keeps going we will kick ourselves, but you know that one thing that the company has always said is, when we see a positive margin and especially in the environment that we came off of deep negative margin environments, we are happy to start there and if we miss it by a month as the margin breaks out that's something we are not unhappy to explain to you. But in terms of curve, the curve isn’t developed yet. The curve is, second and third quarter undeveloped. Fourth quarter is developing if you are going to originate the corn.

A.J. Strasser - Cooper Creek Partners

Are you seeing any double-digit EBITDA margin opportunities?

Todd Becker

As we said earlier in the call, we see some double-digit margin opportunities in the fourth quarter if you can originate the corn?

A.J. Strasser - Cooper Creek Partners

Right, I guess my question is and I understand you know, the need to be conservative here and you know, you certainly did a great job in Q4 and you don’t want to add yourself in Q1, Q2 but just I think people are kind of under appreciating what you guys are able to do even in this environment. So if I look out what you guys came in to Q4 with in terms of what you were locked for, I think you said it was about 60% at mid-teens margin. Is that correct?

Todd Becker

If I recall, we were 60% up in the mid-teems. It's a high teens.

A.J. Strasser - Cooper Creek Partners

Okay, and I think if I go back in Q2, it was 40% or so, was locked in for Q4. So my point is you guys did 14% EBITDA margin in the quarter. So clearly, November, December, whatever you were locking in a spot basis is actually, it looks like it may have actually been double-digit, maybe even teens. And then the math could be faulting, but that would be the implication if you only had 60% covered going in on your last call?

Todd Becker

There’s lots of other things that are on yield improvement that our yield and other types of lower operating costs, some efficiencies that we get, we were able to do some things around our plant as we tell people using our balance sheet to use the options market technically crush. But in general, there are moments in time where we saw some opportunities that we have locked some stuff away and buy better corn basis maybe during some of the harvest spots accumulate some corn basis pre that quarter and so in general overall we are able to maximize the opportunity.

A.J. Strasser - Cooper Creek Partners

And just qualitatively speaking how is the beginning of ‘13 looking versus the November and December months?

Todd Becker

November, December months realized our November, December spot crush.

A.J. Strasser - Cooper Creek Partners

Spot crush.

Todd Becker

Spot crush is better than the spot crush in November and December. So as we said, we didn’t have a lot on coming into the quarter, so we don’t have the luxury of having a bunch of high crush type barrels on us.

A.J. Strasser - Cooper Creek Partners

It’s fair to say that in this environment you are seeing some opportunities for double-digit type EBITDA.

Todd Becker

No, we are not seeing any opportunity for double-digit EBITDA’s in this environment.

Operator

And our next question comes from Fertilemind Capital.

Aram Fuchs

Hi this is actually Aram Fuchs. I just want to go back to your overview of the industry landscape you mentioned of course that bad plants in bad areas are priceless than the good plants in good areas but it seems like you are implying that there is some sort of, that there is an IRR difference that even though the bad plants in bad areas are cheaper they are still not wouldn’t give you the IRR that a good plant would even is that true?

Todd Becker

That is absolutely true. It doesn’t matter what you pay for your plant in some areas if you are going to even if you pay $0.10 a gallon in a negative margin environment is much more negative there, and in to this burn cash. So in a good margin environment you can make it wok, in a poor margin environment it’s just a cash log. I mean the IRR in general though in those plants typically origination costs are higher, operating costs are higher. I mean you are talking about a significantly different type of structure than what we have today.

Jerry Peters

Yeah, even if you quantify I mean if you look at $0.05 to $0.06 a gallon in operating cost difference and maybe $0.05 to $0.06 a gallon in basis difference for certain plants. I mean you lose $0.10 a gallon in the crush and its gone, there is no way to generate a positive IRR on that in this environment.

Aram Fuchs

And does that imply that those plants are probably going away, I mean if no one’s operating, even if they --.

Todd Becker

I don't think going away, I think what it is you can use them as a picker plant, very similar to what we see refining where you buy and margins pop and pop hard, you are try and run them and make a peaker plants and when they are low you shut it down and have a low cost structured and lay off your work force as opposed to, but that is not our model at all.

I mean we wouldn’t put excess cash and just have a peaker plants, we have plenty of better thing to do with our money but when you look at the plants that were traded recently like those two that we discussed those plants probably never really ever needed and maybe at one point would have looked to shut down but in general especially the big plant that plant would never have needed to shut down through the whole cycle.

Aram Fuchs

Got it, and then on the algae business you mentioned showing the greatest potential, can you just dig in to why that is, is it just the mixture of the product gets the Omega 3 there more efficiently and then the current competition or what would that be.

Todd Becker

Its more efficient, its potentially cheaper, at a higher value oil stuff, higher value oil prices, what you are looking at is a very good fish meal replacement and very efficient fish meal replacement. There is not a lot of other alternatives around the world to replace fish meals in the satiable demand market. In fact the highest value market by far that we could sell algae into but its the market that we could scale into. So we still will always focus first on the highest value either high protein replacements or high oil replacements or high value Omega 3’s, but we can't build our business around those around the long term. We believe that you have to be competitive into the commodity markets albeit fish meal is a very good at high price commodity market. So we are heavily focused on that, as we grow out the acres and people do development around the use of algae in the higher value products, you are going to have to be able to sell the right wholesale algae into these commodity markets first. We have taken a different view. While we appreciate the high value markets, if you can't be competitive at the commodity then its not worth doing from our standpoint.

Operator

That concludes our question-and-answer session. I would like to turn things back over to Mr. Todd Becker for closing statements.

Todd Becker

Yeah thanks everybody for coming on the call. Obviously we are really excited about the future of the company. We are in the best financial position we've ever been in, in the history of the company. We believe we are in a great opportunity to grow value for our shareholders with all the different initiatives that we are looking at, and we believe that the platform that we have and the investments we've made and the debt we've paid down will accrue to the benefit of our shareholders over the long term. So we appreciate everybody coming on today. Thank you.

Operator

And once again that concludes our conference. Thank you all for joining.

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