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Executives

Jim Stark – VP, Investor and Media Relations

Todd Becker – President and CEO

Jerry Peters – CFO and Treasurer

Steve Bleyl – EVP, Ethanol Marketing

Analysts

Laurence Alexander – Jefferies & Company

Farha Aslam – Stephens, Inc.

Brett Wong – Piper Jaffray

Patrick Jobin – Credit Suisse

Craig Irwin – Wedbush Securities

Shawn Bitzan – Feltl & Company

Matt Farwell – Imperial Capital

Paul Razmik – Uncommon Equities

Green Plains Renewable Energy, Inc. (GPRE) Q1 2013 Earnings Call May 1, 2013 11:00 AM ET

Operator

Good day everyone and welcome to the Green Plains First Quarter 2013 Conference Call. Today’s call is being recorded. And at this time, I would like to turn the conference over to Mr. Jim Stark. Please go ahead sir.

Jim Stark

Thanks, Mary. Good morning and welcome to our first quarter 2013 earnings conference call. On the call today are Todd Becker, President and CEO, Jerry Peters, our Chief Financial Officer, Jeff Briggs, our Chief Operating Officer, and Steve Bleyl, who heads up our – Executive Vice President of Ethanol Marketing.

We are here to discuss our quarterly financial 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 this presentation on our website, gpreinc.com, 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 involves risk and uncertainties. Green Plains’ actual results could differ materially from management’s expectations.

Please refer to page 2 of the website presentation in 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 will now turn the call over to Todd Becker.

Todd Becker

Thanks, Jim. And good morning, everyone. We appreciate you joining our call today. In the first quarter, we continue to execute on our company’s strategies or risk management diversification and operational excellence.

We generated revenues of $765 million and net income of $2.6 million or $0.08 a share. This was a significant improvement over the first quarter of last year with nearly a $24 million positive swing in operating income.

Our non-ethanol segments generated $21.2 million in operating income led by marketing and distribution, and corn oil production.

In our ethanol production segment, we produced 170 million gallons of ethanol in the first quarter which is approximately 92% of our stated operating capacity. Margins started to expand during the last four weeks of the first quarter which positively influenced the end of Q1, but more importantly, allowed us to start locking away Q2 which I will give you more color on later in the call.

Our ethanol yield in the quarter was 2.85 gallons of ethanol per bushel of corn. We have found that running a little slower allows us to extract more starch out of the corn kernel and recapture more ethanol on the back end of the plant as we focus on improving yields.

Corn oil production was 0.64 pounds per bushel in this quarter, a slight improvement from 2012 Q1 and Q4 yields, up from 0.61 pounds and in line with our expectations.

We constantly monitor whether we will run our plants to maximize yields or run them to maximize production volumes. Either way, it shows a flexibility we have within our platform which we have taken advantage over the last 12 months.

We saw a significant improvement in our market and distribution segment for the first quarter. All of our major initiatives within the segment, performed well. We were pleased to see that our BlendStar unit train terminal in Birmingham generated strong results in the quarter as it started quicker than we thought it would and has exceeded our volume expectations even as we work through normal start up processes.

Our railcar redeployment continue to meet our expectations as well. We also realize some benefit in the first quarter from our new initiative of trading physical products to take advantage of our trade and transportation flows. We have ramped up this initiative and have over 10 new merchant businesses in place.

Our marketing and distribution was off to a fast start, we expect Q2 to return to more normal EBIT patterns within the segment and to begin to grow from here, as we hope to see additional growth from our new initiatives.

Q1 operating income is not a new standard for the segment at this point. The agribusiness segment contribute a small operating income as we continue on our initiative to rebuild. I will discuss this more in detail later in the call as well.

Now I’ll turn the call over to Jerry to discuss our liquidity and financials in more detail. But before I do, I think it is important to point out that performance over the last 12 months shows a great opportunity that we have in front of us.

Coming out of the most difficult industry environment we have seen in our history, the company still generated over $90 million in operating EBITDA and over $135 million in overall EBITDA.

I will come back on the call to discuss trends in the industry and progress on many of our efforts. Jerry?

Jerry Peters

Thanks, Todd. Good morning everyone. We’re pleased to report to you a second consecutive quarter of profitability on a consolidated basis or revenues for $765 million for the quarter, down 1% when compared to the first quarter of 2012.

The decrease is related to lower grain prices in agronomy sales resulting from the sale of the 12 grain elevators during the fourth quarter of 2012.

This was offset by higher average prices for ethanol and distillers grains this year compared to 2012. Sales of ethanol of our own production facilities increased 1.2 million gallons as we continue to run at about 92% of our stated operating capacity.

With the improvement we’ve seen in ethanol margins for Q2, we currently expect to run closer to 95% of capacity across our platform and depending on forward margins, we may stay at that level for the balance of 2013. We generated operating income before depreciation in the ethanol segment of $0.05 per gallon compared to $0.01 per gallon realized in the first quarter of 2012. And that was before the nearly $4 million non-recurring charge related to a legal settlement that we took last year.

As a reminder, that $0.05 per gallon does not include our operating income from corn oil which continues to average almost an additional $0.05 per gallon that we produce.

Corn oil production operating income was $7.8 million in the first quarter which was flat to what we reported in the first quarter of 2012.

Revenues in this segment were up due to higher volumes in prices, but cost of goods sold with about $2.2 million to offset these increases.

Remember, most of this increase was due to higher distillers grain that we actually paid to ourselves, pay back to our ethanol plants to reimburse them for the volume that’s consumed in the process.

The first quarter of our agribusiness segment saw a revenues decrease by $30 million or 26% over last year due to completing the sale of the 12 grain elevators in early December.

We are still working off corn inventories retained at the Tennessee locations after the sale and expect this inventory to last through the second quarter of 2013.

We reported about $370,000 in operating income and anticipate that beating an approximate run rate for this segment for the next couple of quarters.

The marketing and distribution segment had an excellent quarter with reported operating income for the first quarter of 2013 of nearly $13 million compared to $0.5 million last year.

The increase between the two periods is mainly due to our railcar initiative, a strong contribution from the Birmingham unit train terminal which began operations in December 2012 and are trading in logistics activities around our assets and data flows.

Our income tax expense was 1.6 million for the quarter, which was an effective tax rate of 38.5%. We expect this rate to continue for the balance of 2013.

Earnings before interest income taxes, depreciation and amortization or EBITDA, was $24.8 million for the first quarter of 2013 compared to 1.5 million in the first quarter of last year.

As Todd said on the trailing 12 month basis, EBITDA totaled approximately 139 million which included a $47 million gain on the sale of certain grain elevators in the fourth quarter of 2012.

Overall, our balance sheet position is strong, and getting stronger. Total cash was approximately $242 million at the end of the quarter. We paid off the $27 million note for the repurchase of shares from NTR, that we completed in March of 2012, and also paid down ethanol plant debt by another $11 million this quarter.

In addition, after quarter end, we also completed the refinancing of our Bluffton term note, extending out the maturity to January 2015 and reducing the principal balance by $10 million.

We were also successful in reducing the amortization of this term note by approximately $4 million on an annual basis.

As a result, our ethanol debt service going forward is around $0.09 per gallon which again, allows us more flexibility in the future.

In April, we also closed on a new $130 million asset based loan led by PNC and Merrill Lynch for our Green Plains Trade Group. This replaces our existing $70 million credit facility in this business.

The syndication was well over subscribed and will expand our capability to finance ethanol inventories as well as our trade receivables.

This is a very important step in the evolution of our capital structure allowing us to better align the financing of our working capital under our two ABL facilities. One financing grain inputs and the other financing our ethanol inventories and receivables downstream.

This was also a catalyst to the Bluffton refinancing I just mentioned, allowing us to utilize some of the working capital that was freed up to reduce the balance in the amortization of that facility.

As of March 31, our total debt excluding these ABL revolvers, was $481 million or about 3.5 times, trailing 12 EBITDA.

Capital expenditures was approximately 1.9 for the first quarter, 1.9 million for the first quarter, we have plans in place to begin the grain storage expansions around our ethanol plants where we currently expect to invest about $5 million between now and September on the build out of about 8 million bushels of storage capacity at the plants.

In summary, we saw a strong contribution from our non-ethanol segment, and solid improvement in the ethanol margin structure that is carried over in the second quarter of 2013.

We continue to execute on our strategies and look forward to opportunities to expand our company going forward.

I’ll turn the call back to Todd.

Todd Becker

Thanks, Jerry. The ethanol industry continues to rationalize production keeping rates down to some of the lowest levels seen since the EIA began tracking data.

As a result, ethanol inventories were reduced this morning to around 17 million barrels which is the lowest we have seen it heading into the summer driving season and the lowest since December 2011.

There’s still a gap in ethanol production versus the mandate which continues to have a positive effect on the margin environment. Another positive is that Brazil is fully priced out of the U.S. market throughout 2013,

Unlike last year at this time, excess needs will need to be met with either better domestic production or continue drawing stocks like we saw today.

We expect better company performance in the second quarter. Margins have improved during the quarter even with the latest weather spike in corn.

We have very little left to lock away as we started aggressively during Q1, to lock away Q2. After experiencing the volatility of 2012, we felt we needed to move quickly to do this or we might have probably, while we probably might have missed some of the highest spot margins we have seen for a while, we are satisfied with maintaining our discipline approach to managing risks.

The third quarter remains undefined, but is much improved from where we were at the same time last year. The fundamentals of ethanol will need to take shape, and we believe under the current environment we will have better opportunities to lock margins away in the third quarter.

And in the fourth quarter, we’re not focusing on that quite yet. The farmer still needs to get the crop planted, and we’d like to get some extended physical coverage on our physical side of corn.

While we certainly don’t like the planting progress to date, the velocity of the planting has improved dramatically and can adjust upward very quickly. Under current condition, even with a slight decline in acres, the carry out could be burdensome with some return on normal yields.

The spread between wholesale gasoline and ethanol has declined to a range of $0.40 to $0.50 per gallon on the forward curve, but there is still a significant economic incentive plan especially when you include the current value of the rents.

For every gallon of ethanol, we sell to a blender or a refiner, the RIN is free to the buyer, and it travels with the gallon.

The noise that was generated that ethanol was going to cause gas prices to rise, is nonsense. Retail prices for gasoline are down $0.35 a gallon this year compared to last year.

We believe this is a classic short squeeze and a merchant refiner without adequate downstream distribution systems may be getting hurt. But other large owners of this distribution and blend capacity are getting the value of the RIN, and passing this on the consumer in lower gas prices.

Some of the companies that are short rents may be getting hurt to try and secure the consumer and to believe in this cost, we pass on to them, we believe in this ingenuous.

On our last call, I talked about two of our key growth initiatives, rebuilding our agribusiness segment, and expanding our trading and logistical activities around our trade flows.

As Jerry mentioned earlier, we have plans to invest $5 million in building, about 8 million bushels a storage starting now and being completed by September.

This will expand our GPG owned grain storage to approximately 17 million bushels not including grain stores that existed already when we built our ethanol plants which should put us in a solid position to compete for first handle corn from the producer this fall.

Our current plan is to build an additional amount of storage in 2014 roughly taking us to 25 million bushels of storage.

Most of the storage is in line with our supply chain, to serve as our own internal demand but in many locations flexibility to sell externally as well.

One final point to our ethanol segment, that is only about a month and a half worth of needs for the crush. So we’re going to continue to asset additional capacity at or around our demand base as these projects come online.

We are starting to monetize our trade flows, in and out of our ethanol plants and logistical assets. We continue to hire physical cross country merchants to build this business over the next 12 to 18 months. Both of these growth initiatives are meeting our timelines and our expectations for 2013.

Now a quick update on Bioprocess Algae venture, last week, Bioprocess announced being selected to receive a matching fund grant of up to $6.4 million from the U.S. Department of Energy. This grant is for a pilot scale project aimed at the production of hydro carbon fuels made in military specifications.

The project will utilize our grower harvester technology platform collocated at our ethanol plant in Shenandoah, Iowa.

The initial contacts to the award was a pilot project to use algal biomass combined with renewable sugars to further process into fuel using a technology already developed.

Bioprocess was the award recipient, but there are two other parties also involved in this specific pilot project.

There’s a 90-day pilot period required to run the project, there’s no further obligation on our behalf after that.

We are certainly pleased with bioprocess algae being the only algae platform chosen to be part of the project by the DOE that was submitted back into September of 2012 which we believe gives immediate credibility to what we are trying to accomplish in Shenandoah.

As we said in our past, our technology is all about growing and harvesting algae at commercial scale as efficiently and cost effectively as possible.

The grant will help to offset some of the build of the 900 foot reactors being built in Shenandoah. Because of this partnership, we are changing some plans for the 2013 project as outlined in the past and will push construction back a bit as our scale and scope is increasing.

We expect to get started within 30 days with a revamp construction schedule, all really driven by the grant that we just received.

We’re excited about teaming up with the DOE on this project and furthering our ability to grow and harvest algae.

Before we open it up for questions, I’d like to summarize where grain stands today. We’ll continue to find innovative ways to de-risk the ethanol segment, but we understand that the value of our business comes from the earnings power of our production.

.We continue to work on growing our non-ethanol operating income to help diversify our company’s earnings, we value the flexibility that a strong liquidity position brings to our business and continues to improve our capital structure.

Our employees all listed in our annual report take the initiative everyday to make things better and find opportunities to improve our performance both operationally, and financially.

Thanks for calling in today, and I’ll ask Mary to start the question and answer session.

Question-and-Answer Session

Operator

(Operator instructions) And we’ll take our first question from Laurence Alexander with Jefferies.

Laurence Alexander – Jefferies & Company

Good morning.

Todd Becker

Good morning, Laurence.

Laurence Alexander – Jefferies & Company

I guess first of all, can you give a little bit more detail on the amount of CapEx you’re applying to building out the marketing and distribution segment? And how you think about how much of a lift that might give to earnings over the next – call it, two to three years?

Todd Becker

Yes. Everything we’re doing in marketing distribution at this point requires a very little capital in terms of capital expenditure. A lot of it is really just utilizing our balance sheet and our capital structure to take advantage of trade flows. And even then, the margins we earned really take very little capacity off the balance sheet.

In terms of capital, we are still evaluating several projects, terminal projects around our BlendStar platform. And in fact we’re in late stage of development of one of our other sites into a similar terminal as Birmingham. So we’ll keep you updated on that. But at this point, it’s very little capital around the marketing distribution segment for the next 12 months.

Laurence Alexander – Jefferies & Company

And then on the railcar leasing program, what’s the run rate for that and how should we look at that going forward?

Jerry Peters

Laurence, for the quarter, we had about $4.6 million of operating income from our crude oil transportation activities. Todd, do you want to –

Todd Becker

I will expect that somewhat to be consistent for the remainder of the year. And so, obviously as ethanol margins get better, we may pull some of that back into our fleet if we want to expand our run times over and above kind of 100% of capacity or 740 million gallons. If we have any capability to expand beyond there, we may pull some of the cars back. But at this point we become very efficient in our transportation flows and have great utilization on our fleet. So right at this point, that should be somewhat consistent run rate for the remainder of the year.

Laurence Alexander – Jefferies & Company

Then on the BioProcess site, can you give a little bit more detail on both progress towards commercialization like are the price points on products and acceptability of product checking out and also any discussions with other potential partners around the industrial side?

Todd Becker

Yes. Thus far, the reason we’re building the 900 foot reactor is because as we scale, we continue to see the benefit of scaling. Most of that scaling efficiency is coming through the processing of the Algae into a finish project product either the paste form or into the dried wholesale plaque. And as we scale it, we learned that where we’re at in terms of building the reactors is going to be pretty steady. And where we get the benefit is in our processing capacity.

In terms of our development, our goal is to get to one ton a day of production. While it doesn’t sound like a lot, in relative terms, there is plenty of demand for high quality products. And we are in development stages with multiple large scale users that are looking at it from either a high value protein standpoint, looking at it from an Omega 3 standpoint and also looking it as a feed, an animal feed as well in the fish meal market. So we’re also in many development projects there.

And then finally, what was the last question actually?

Laurence Alexander – Jefferies & Company

Just in terms of the potential partners on the industrial side.

Todd Becker

Yes. As I mentioned, we’re in late stage development on that. And we continue to work with many partners. None, at this point we’re at liberty to mention. But we’ll keep you updated on that. Except to say that our efforts are ongoing and they are aggressive and they are widespread.

Laurence Alexander – Jefferies & Company

Okay. Thank you.

Operator

And we’ll take our next question from Farha Aslam with Stephens, Inc.

Farha Aslam – Stephens, Inc.

Hi, good morning.

Todd Becker

Good morning.

Farha Aslam – Stephens, Inc.

Congratulations on a good quarter.

Todd Becker

Thank you.

Farha Aslam – Stephens, Inc.

And then just first a quick one to follow on to Laurence’s question that one ton a day of production, in terms of timing, if you had to put a time horizon on that, is there a time goal for that?

Todd Becker

Yes. By the end of this calendar year, we hope to have the project up and running and producing one ton a day of production.

Farha Aslam – Stephens, Inc.

That’s end of calendar year 2013?

Todd Becker

End of calendar 2013 that is correct. It may go into the first quarter of 2014. But in general, most of the CapEx was engineered. By getting award, we had to pause just a bit to make sure that we reconfigure to meet the specifications of the award as it; we really didn’t know when that would come or if we would be a recipient of that.

So because of that, we have to reconfigure a bit of this project. And so, the reconfiguring comes in because we’re going to actually use renewable sugars combined with a catalyst technology to convert the algae into a hydrocarbon fuel and we’ll see the economics of that.

We have no commitment in terms what those economics are going to be, expect the fact that we will share with the government to see whether it’s a viable long-term program or not.

Farha Aslam – Stephens, Inc.

Okay. And then longer term, what do you hope to scale this BioProcess algae from one ton to what could it be scaled to?

Todd Becker

We have indicated that at one ton a day, we have to really focus our efforts down on a few long-term counter parties because we just won’t have enough production for the demand that exists out there.

So if you look at the fish meal market, the 10 million ton a year market, if you look other high value commodity markets, it’s much greater than what we’re going to produce.

And because we had a very wide distribution to many parties that are doing a lot of work on the product, we’re really now focusing on scaling into potentially one or two long-term partners that see the value of the product as one of their downstream initiatives and really focus on getting something nailed down where most of what’s comes up the farm will go to only one or two counterparties. And that’s kind of what we’re focusing on right now.

And as we grow that and grow the demand, we’ll determine how fast we grow the footprint. Our goal has always been to kind of get the 40 acres or 50 acres quickly in Shenandoah. And as the demand base starts to line out, we think we’ll probably start to think about that project going forward.

Farha Aslam – Stephens, Inc.

Okay. That’s helpful. And if we could turn back into your base business of ethanol, your thoughts on imports of Brazilian ethanol as the Brazilians are wrapping up seasonal production?

Todd Becker

Yes. I think even as the Brazilian wrap up seasonal product, what we’ve seen is that, they are really priced out of our market with the drop in corn. When you look at the value of what corn converts into sugar, it’s about $0.11 a pound. And if you look at wholesale sugar around the world, it’s about $0.18 a pound. And that’s kind of what we’re competing with, what they’re competing with right now.

So when you look at the price of ethanol, relative to that price of corn based sugar, then you could see that they’re not going to be very competitive with us at least in 2013, as well as their own internal demand is increasing because they’re on expanded blends. And so, when you look at all that, and put it all together, we don’t expect a heavy return into 2013. Maybe some will come into California.

And California may need to be a differentiated market where because of low carbon fuel standard there and the requirements that they’ll have to import some sugar but sugar based ethanol out of Brazil. But I would argue that anything we import going forward, will be exported equivalent out of the U.S., either back to Brazil for their own internal demands or somewhere else in the world.

So I think when you look forward at least for the rest of the year, we will most likely be at worst case scenario, a break even exporter against imports. And probably most likely, we will be a net exporter for the rest of the year as well, which should continue to either drive stocks or tighten up the situation in the U.S.

Farha Aslam – Stephens, Inc.

Okay. And just two more questions. The first one is on ethanol production in the U.S. We’ve recently seen a bit of a pickup in production as ethanol profitability has improved. Are you at all concerned about that pickup in production?

Todd Becker

Yes. We’re watching it really closely. And if you look at today’s EIA data numbers, we saw a small uptick in production, we saw a large draw in production, we saw a net export and no imports. That’s all a formula that’s 850 barrels per day, 850,000 barrels per day of production is still not quite there yet.

So, even small upticks from this point are not going to probably have a big impact on a stocks build. When we get to these types of levels where we’re watching it very closely, we have ramped up our production as Jerry had mentioned and we’re watching that very closely. And we always look at that forward curve.

And since Q3 is really not developed yet and Q4 is still far away from now, while some people may come up today, they have to make the decision whether they want to look at Q3 and determine whether they want to come up today or not. And that’s the thing that might be holding back production a little bit. But in general we believe those fundamentals for Q3 will continue to develop and continue to get better.

So yes, I mean, we watch it closely. But at 850,000 barrels withdrawals on stocks at this point, we’re running below the mandate. And any increase in production will be met with enough demand to take care of that, we believe.

Farha Aslam – Stephens, Inc.

Great. And the last question is on the RFS, do you anticipate any changes in the RFS as oil companies in obligated parties have expressed concern about meeting it potentially in 2014 and into 2015?

Todd Becker

Yes. We monitor it very closely. I mean when you look at what the rhetoric is coming out of the government and the EPA and the Whitehouse on the RFS, given a program which is E15 to the market to meet their obligation.

And if all we ever did was get to an E11 blend nationally, they meet all their obligations relative to production and relative to the RFS mandate.

And so while we certainly understand that there’s definitely some barriers to a widespread expansion to get to the whole USC15, to get to E11, we think which basically takes care of the mandate all the way through 2015 just about takes care of the mandate through 2015 and we believe the program exist that the government may stand firm.

We’ll have to watch more closely around the advance in the cellulosic side and determine whether they’ll be required to blend something that doesn’t exist today. Obviously bio diesel does, but in terms of cellulosic or advanced ethanol, you know, that will be the question that we’ll have to look at. But there’s enough corn based ethanol out there that meet their obligations for 2015 at an E11 blend.

And we think at this point, obviously, congress can do what they want to do, but it still has to get through the Whitehouse, and we believe we have strong support in the Whitehouse today.

Farha Aslam – Stephens, Inc.

Okay. Thank you.

Todd Becker

Thank you.

Operator

And we’ll take our next question from Brett Wong with Piper Jaffray.

Brett Wong – Piper Jaffray

Hi. Good morning, guys.

Todd Becker

Hi, Brett.

Brett Wong – Piper Jaffray

Kind of going back to the supply and demand side of the industry. Historically, as margins improve, production comes on. I’m just kind of wondering why you don’t think that we’re seeing the increase in supply given the strong margin and the run up until the blend wall.

Todd Becker

Well, there’s a couple of reasons for that; number one, you may, if you’re an ethanol plant and you’re down, while you might have strong margins in this spot, you have to believe you’ll have those strong margins in Q3, and Q4 and the curve isn’t fully developed, so if you want to finance yourself coming up, you probably have to – you know, if you don’t have a balance sheet like we do, and a belief like we do that margins continue to roll forward, it’ll be hard to get excess capital to get yourself up and running. That’s kind of the first thing.

The second thing is, what you have to watch very carefully, and I think people aren’t really looking at this closely, is that we have, when we build an ethanol plant, we basically register our maximum run rate which is whatever we call that, Steve?

Steve Bleyl

Baseline.

Todd Becker

Our baseline. I’m sorry. Our baseline run rate. And so the thing is, if you run over your baseline, then you’re going to be short the RIN. So I’ll give you an example of what that means. When we built Bluffton, we built Bluffton as 100 million gallon ICM big in built plant. We registered our baseline at 120 million gallons.

In a year when rents were very cheap, we were able to run over our baseline by the RIN and satisfy, and have the RIN travel with the gallon. Today, when you have the baseline, you don’t want to run over your baseline because as an ethanol producer, you could end up being short to RIN. So that’s, let’s say an overall cap on capacity, albeit that’s above this level today, so we can continue to run as an industry, about this level, but you’re not going to run full out like you might have ran in Q4 of 2011 when you just ran full out and you didn’t take any consideration, the baseline capacity.

So that’s where you may not be able to get back up to that 950 run rate even as stocks draw because of that baseline capacity. I don’t think people are taking that into consideration today.

Can we run enough to satisfy the mandate? Absolutely. We will run much higher than that. I think people are much more disciplined today than that.

Brett Wong – Piper Jaffray

Okay.

Operator

And we’ll take our next question from Patrick Jobin with Credit Suisse.

Patrick Jobin – Credit Suisse

Good morning. Thanks for taking the question and congrats on a strong quarter.

Todd Becker

Thanks, Patrick.

Patrick Jobin – Credit Suisse

I just want to follow up on the marketing and distribution segment, I guess you broke out the railcar initiative is it possible to tell us a break out, kind of trading logistics and then the blending operations?

Todd Becker

No, we really typically don’t do that. We only broke out the railcar initiative obviously because it’s something we have done in the past. But overall, we have strong contributions from all the others.

And as we continue to grow that segment, we’ll make determinations in the future what gets broken out or not, but at this point, it’s basically an all blended number.

We did have strong performance during the quarter by taking advantage of some of our trade flows. But I would tell you a lot of that increase came from that overall, but some of it also came from our terminal operations.

Patrick Jobin – Credit Suisse

Okay. Then just a follow up on the high RIN price environment, I guess, do you capture any of that value with the blending operations downstream and is it possible I guess you mentioned, you do have one blending facility or a train under consideration right now, for what that capacity might look like going forward?

Todd Becker

Yes, we don’t really, from the standpoint of directly capturing the value of the RIN, we don’t sell blended gallons in many places to do that. Obviously, in some markets where we have the terminal capacity, we may see that through a better margin structure in our merchant trade, but in general, we see very little impact or benefit of that, but in terms of the other facility we’re looking at, it would be somewhat similar to a Birmingham type facility where four unit trains kind of the minimum, right, Steve, is that correct?

Steve Bleyl

Ballpark, yes.

Todd Becker

Ballpark, with possible increases from there. And that facility doesn’t handle that today. And net CapEx will be actually smaller then Birmingham because we do have a bigger capital there as well. So it would not be a very large CapEx to expand to a larger terminal operation.

Patrick Jobin – Credit Suisse

Okay. Then just two quick housekeeping items. First, can you mention the CapEx you expect for the bioprocess algae venture both getting to the one ton and just what that capital utilization of capital intensity would be if you grew that to your targets longer term? That’s the first point.

The second point just on the railcar contract extensions, if you can give us an update there? I believe you’re starting to expire in September? Thanks.

Todd Becker

Yes. So in terms of the algae capital intensity, so you know, obviously, the $6.4 million grant is a matching grant that we as all partners have to put up our share minimum, so we own today, 52% of the algae venture, so in terms of, to build out the equivalent of about $13 million of CapEx, our minimum capital contribution will be 52% of $6.4 million and that’s going to have great leverage in terms of the grant and then the ongoing CapEx that returns back to the company.

So that will be our 2013 spent. So not too much obviously, a little bit of normal SG&A, above that. And then as we look at 2014 as we see success at the 900-foot reactor level, which our 900-foot horizontal reactors that are laid out on the ground all connected up with processing capabilities.

As we see success from there, and start to really build end market contractual obligations with users which we’ve very focused on, on getting to, at some of the highest value points early on, as well as potential long terms contracts with global fish meal users, we’ll make a determination of how and what that next level of financial velocity or funding velocity will be. And whether that gets funded from the partners or that gets funded externally at some point.

So that’s obviously something that we’ll have to look at down the road. But we’re really focused on truly improving out to get to a ton a day of finished production at a high quality selling price that can actually be put into product consistently next year. And that’s kind of what we’re focused on right now.

In terms of railcar leases, we’re renewing the leases right now, and we continue to focus on that. And looking at what the best optable [ph] use of our fleet is, and whether that kind of returns back in ethanol production, but we’ll look at other opportunities around using our tank cars in trade and transportation flow.

But in general, we don’t have a lot coming due in 2013. So in general, we’re looking out on the curve determining what’s the best thing to do for the company long term and whether that’s to continue to lease or look at other alternatives.

Patrick Jobin – Credit Suisse

Thank you very much.

Todd Becker

Thank you.

Operator

And we’ll take our next question from Craig Irwin with Wedbush Securities.

Craig Irwin – Wedbush Securities

Thank you. Most of my questions have been answered, but I wanted to dig in a little bit into SG&A, that ticked down about 6.5 million sequentially, obviously 2.5 of that was corporate. Can you discuss with us whether or not there are any one time items or anything that maybe was shifted into later in the year or if we should look at this more sort of a different level given your financial discipline?

Jerry Peters

Craig, no. There really aren’t any one time item in SG&A. As I’ve mentioned earlier, it actually in coffee that’s sold there was a onetime item in 2012 related to that legal settlement, it was about $4 million. But in SG&A, there really wasn’t anything that’s non-recurring.

The main difference though, you know, once you account for the corporate SG&A which you mentioned, the reduction other than that is our grain company on those 12 grain elevators that we sold had a fairly significant amount of expenses that were reported in the SG&A line.

Craig Irwin – Wedbush Securities

Great. And then one thing I wanted to ask for just a little bit more color on. You clarified for us non-cash EBITDA of $0.05 a gallon, roughly 8.8 million. If we look at the non-ethanol production operating income or just approximate that and your marketing and distribution in there. It appears that the marketing and distribution for Green Plains itself has become maturely more profitable over the last handful of quarters. Can you discuss specifically if this is related to something maybe strategic in your end markets, a change in approach if this is likely to be sustainable or if maybe this is more of a short-term phenomenon that’s benefited you while the market has been dislocated?

Todd Becker

Yes. So in terms of when you said, $0.05 a gallon of non-ethanol, that’s actually, that was our corn oil which Jerry indicated that it was an uptick, in terms of thinking about it and applying that back into our business. Overall what we have guided on is that we’re still on track to achieve $60 million of non-ethanol operating income. When you break that down around half is coming from our corn oil and the other half coming in our market distribution and agribusiness segment, even before the rebuild.

For the marketing and distribution, obviously we had a very strong quarter as we indicated earlier in the call, while we don’t expect that necessarily to be the run rate that you should think about, returning more to kind of what you see in the last quarter or so. At least for a little while it could continue to build up.

We still may have strong quarters in the marketing distribution going forward. As now, we continue to rebuild or continue to build that segment out with expanded terminal operations, expanded merchant operations and other things that we’re looking at within that segment.

So overall, very strong, very good quarter, the guys did a great job there, taking advantage of all the opportunities that they saw in front of them, including the wrap up of Birmingham. And we expect that our goal is to kind of get back up to those numbers and depending on where the opportunities are within a certain quarter. We may see some of that in the future. But right now, we’re going back to what our average run rate has been to get to that total of about 60 million for 2013.

Patrick Jobin – Credit Suisse

Great. And then just to be perfectly clear. So I myself and everybody else on the call understands how you’re looking at this. Do you intend on including marketing and distribution more in your crush operations when you calculate the crush returns of your facilities? Or is this going to be a component of the non-crush EBITDA, like it has at some point in the past?

Todd Becker

Always has been in the past and it always will be in the future as part of non-crush component.

Patrick Jobin – Credit Suisse

Thank you.

Operator

And we’ll take our next question from Brent Rystrom with Feltl & Company.

Shawn Bitzan – Feltl & Company

Hi guys. This is Shawn Bitzan, sitting in for Brent Rystrom.

Todd Becker

Hi, Shawn.

Shawn Bitzan – Feltl & Company

On the gross profit for marketing and distribution segment, I know you’d said, you don’t really break that out or won’t break that out this quarter. And you just stated that we shouldn’t look for marketing and distribution for that to be the run rate going forward. Is it going to be sequential going up and down? Or is there any consistency whatsoever to expect from that?

Todd Becker

Yes. What we said is when you look back at Q4 and I don’t know Jerry, what was Q4. Do you have that Jim? Into that, back into that historical EBIT range, obviously this quarter was $3 million or $4 million better than the prior quarter if we go back into that last quarter range.

Basically if you have 30 million coming up from corn oil, we should expect somewhere in that, $7.5 million to $8 million range per quarter right now, going forward for the rest of the year. And then depending on if we see any other great opportunities or we accelerate some of the projects that we’re working on, that may go up from there.

So that will be your normal run rate. And then from there we hope to grow it very quickly. And hopefully down the road, this will be more of the norm than the exception.

Jerry Peters

Yes. And our operating income for Q4 in marketing distribution was about just under $7 million.

Shawn Bitzan – Feltl & Company

Thanks guys.

Todd Becker

Thank you.

Operator

And we’ll take our next question from Matt Farwell with Imperial Capital.

Matt Farwell – Imperial Capital

Hey, good morning. Just a question on the current and the forward margin outlook, about margins that are clearly higher. What are you seeing today at the plant level and in the forward market? And how exposed are you to see that curve?

Todd Becker

Yes. As we indicated in the call Matt, we’re basically done for Q2, we’re focusing on Q3, or a curve in Q3 isn’t developed yet. But if you go back and look at the last two years at this time, I would tell you at that this call at this time that that was repeated. And each year, the curve developed in the next 30 to 45 days. And once we see that curve develop we’ll move to lock margins away.

If you look at the underlying fundamentals, that curve has to develop at some point here because you can’t afford to take production down at this point based on the current stocks draws, current demand base, summer driving season, no Brazilian imports. So that curve out in Q3 has to start to develop at some point or we could put ourselves into even a tighter situation going forward.

Q4 has been ranging. We actually have locked in some Q3 for our Tennessee facilities, as those are some of the best margins we saw out on the curve. And we have focused a little bit on Q4. But we’re really waiting on Q4 until the farmer comes out of the field, he’s comfortable with what he’s planted, get the acres in, has adequate moisture and starts to sell some of their physical corn into the commercial channels.

This is the year where I think we have as industry, the lowest, as a grain industry in general and probably as an ethanol industry, some of the lowest coverage forward farmer producer sales that we’ve seen in many years.

And so, with that said, with the basis volatility that we’ve seen in the last couple of years in Q4, I’m not sure a lot of companies are willing to go short in the U.S. corn bases and put on the financial crunch at these levels.

Matt Farwell – Imperial Capital

So in terms of the demand outlook, we could see, it seems like the current spot, we should demand continue to grow or a refraction continue to grow. You mentioned earlier in the call, you think the demand will be there. Are you suggesting that if we see production grow to the 13.5 billion, $14 billion per gallon for your run rate, we won’t encounter any blend issues [ph]?

Todd Becker

I don’t think we’re going to see that production come on like that because I think in order for it to come on like that, a lot of people have to go above their baseline capacities. And so, I don’t think you’ll be able to get to that that number that easily and be short RIN [ph].

And so, I think I also think if you look at it, the industry has been somewhat disciplined about the ramp up, kind of stayed in this 800 to 850 range for a little while here even with a better margin of RIN.

Are people ramping up? Sure. Are we ramping up a little bit? Absolutely. I also think people realize that as they run slower, their yields went up. And as your yields go up, you have to actually replace out on the curve that yield with better margins.

And at single digit margins, that’s a calculation you have to decide, and at single digit margins, you would run slower and get into that low teens margin, you run faster. So it’s just one of those environments that you can come up and down very quickly based on the margin based on a yield. And I think people in the last 12 months have realized that.

There are plans right now that won’t come up because the curve isn’t developed enough. And I don’t know if we can get the financing to come up. So I think when you look at all that and you’ve put that on a piece of paper, at 13-3 demand base, 13-8 mandate and exports net of imports, I still think you could handle more, and draw on stocks, you can handle more production increases if people have the balance sheet to come up.

Matt Farwell – Imperial Capital

That’s helpful. Last question is on the new working capital facility. Could you just elaborate a little bit on how that improves the company’s liquidity and the financing position, does it relates to any restricted cash, maybe give some more color on that?

Jerry Peters

Sure, Matt. Yes, I mean what we did in Bluffton is kind of the prime example and we hope to do it at other plants, but what we’re doing is, we’re transferring the grain ownership at our plants gradually over to our grain company, and we’ll finance that under our grain revolver.

And then the ethanol that’s in tank at the plants, we intended to transfer that over to our trade group basically transfer it early and use our ABLs to finance that inventory. Again, that will drive liquidity, in this case, it added about $5 million or $7 million of liquidity to Bluffton just as an example that then was used to pay down that term debt at Bluffton.

If we replicate that overall, nine plants, you know, it could be a $50 million, $60 million impact to the total platform.

Matt Farwell – Imperial Capital

That’s great. Okay, thanks a lot.

Todd Becker

Thanks, Scott.

Operator

And we’ll take our next question from Brett Wong with Piper Jaffray.

Brett Wong – Piper Jaffray

Hi, guys. Sorry, I think I got cut off a little bit earlier. Thanks for taking my follow up. I just wanted to clarify around the CapEx expansions for your onsite facilities, you said 5 million to build out 8 million bushels. Is that correct?

Todd Becker

Yes. If you look at our CapEx around building additional grain storage, it’s 5 million this year, for 8 million bushels and probably another 5 million next year for 8 million bushels of storage. That is correct.

Brett Wong – Piper Jaffray

Okay. So then we should expect that $0.60 per bushel cost for new grain storage. Is that correct?

Todd Becker

That is correct. And it’s utilizing, I think what’s important is the way we’re able to keep down a lot of these costs as it utilizes a lot of the infrastructure that exists today, the road, the scale, the employees, that is also – and we also have rail at all of our ethanol plants as well.

So we kind of just look at building flat storage as well, and capturing that first margin – we designed these to be very high velocity as well. So we have multiple high velocity dumpsites that we’ll be able to keep up with commercial brand elevators in our local area.

And also, I think what’s important there is, as we build that out, we will divide that into an agribusiness segment, it’s not part of our ethanol cross segment, and ultimately, that 25 million bushels of storage will then accrue to the agribusiness segment, and those earnings will then hopefully replace a large portion of the earnings that we sold last year when we sold the 12 brand elevators.

Brett Wong – Piper Jaffray

Okay, great. Thanks a lot.

Todd Becker

Thank you.

Operator

And we’ll take our last question from Paul Razmik with Uncommon Equities.

Paul Razmik – Uncommon Equities

Thank you. Good morning.

Todd Becker

Good morning, Paul.

Paul Razmik – Uncommon Equities

A lot of questions has been answered. One question, with regard to exports, do you think the European Union ethanol anti dumping duty is going to be a problem for ethanol exports?

Jerry Peters

It will be this year, obviously.

Todd Becker

It will be somewhat, but I think when you look at it, it sounds a lot bigger than it is, when you look at it, X-dollars per ton, is only X-cents per gallon, and that X-cent per gallon, when you look at that in terms of what that exactly is and the relative price of our forward curve of ethanol, at $2 a gallon if you add $0.25 a gallon to that, or $0.35 a gallon to that, you still would come into Brazil, cheaper than RN2 EDEU [ph], cheaper than a lot of the world capability and the world supply. So while that might be a somewhat disadvantage on paper, we believe that some of that can be captured back in our lower price of ethanol if corn continues to make its move.

Paul Razmik – Uncommon Equities

Thank you. That’s it.

Todd Becker

Thanks, Paul. Okay.

Operator

And that does conclude today’s question and answer session. I’d like to turn the call back over to Todd Becker for any closing remarks.

Todd Becker

Thank you very much for coming on the call. Obviously, we’re pleased with the quarter’s results and the increase versus last year at this time. Obviously, we are still staring at a curve that has to get defined, but overall, the fundamentals are much better for us in terms of the ethanol production segment.

All of our initiatives are on track and we’re going to continue our program to grow our non-ethanol operating income with all the other initiatives we have in place. Hopefully, that will provide some opportunities in the future for you as well.

Thanks for your support. And we’ll talk to you next quarter.

Operator

And that does conclude today’s call. Thank you for your participation.

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