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Green Plains Renewable Energy, Inc. (NASDAQ:GPRE)

Q3 2010 Earnings Call Transcript

October 22, 2010 11:00 am ET

Executives

Todd Becker – President and Chief Executive Officer

Jerry Peters – Chief Financial Officer

Jeff Briggs – Chief Operating Officer

Jim Stark – VP, Investor and Media Relations

Analysts

Michael Cox – Piper Jaffray

Farha Aslam – Stephens Inc.

Lucy Watson – Jefferies & Company

Ian Horowitz – Rafferty Capital

Matt Farwell – Imperial Capital

Paul Resnik – Olympia Capital Markets Group

Gabe Kim – Wellington Management

Doug Millet – Perella Weinberg

Brent Rystrom – Feltl and Company

Dan Chandra – DW Investment Management

Matthias Ederer – Goldman Sachs

Operator

Good day ladies and gentlemen, and welcome to Green Plains Renewable Energy third quarter financial results call. At this time, all participants are in a listen-only mode. Later we’ll conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions)

I would now like to introduce your host for today’s conference Jim Stark, Vice President of Investor Relations.

Jim Stark

Thanks Javon. Good morning and welcome to our third quarter earnings call. Todd Becker, President and Chief Executive Officer; Jerry Peters, our Chief Financial Officer; and Jeff Briggs, our Chief Operating Officer are on the call today. We are here to discuss our third quarter financial results and recent developments for Green Plains Renewable Energy.

Please remember that a number of forward-looking segments will be made during this presentation. Forward-looking statements are any statements that are not historical facts. These forward-looking statements are based on the current expectations of Green Plains’ management 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 expectations.

Information about factors that could cause such differences can be found in the third quarter earnings release on Page 2, and in our 10-K and other periodic SEC filings.

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 the material.

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

Todd Becker

Thanks Jim. And thanks everybody for joining us on the call this morning. Margin management and operational excellence are the driving forces behind Green Plains. Our organization continually focuses on what can be done to make us better from top to bottom. This focus is why we are successful in locking in margins that provide us with a consistent profitability and cash flow to sustain our low-cost platform for the long-term.

The third-quarter results reported Thursday aftermarket now makes for six consecutive profitable quarters and puts us in a position to finish 2010 in a very positive note. The sequential quarter accomplishment shows the sustainability what we have created at Green Plains. Our six plants again produced over 129 million gallons of ethanol, as the investments we have made in process improvements continue to provide returns to increase production capabilities.

We remain optimistic that we can increase our production rates organically from our existing platform, but a lot of low hanging fruit has been harvested, and the next steps we are focusing on are yield and plant efficiencies. Keep in mind every 100th point of yield expansion, for example moving from 2.8 to 2.81 gallons per bushels generates approximately $3.5 million of additional margin annually at today’s corn prices. And Jeff will be available to address any questions you have on operations in the question-and-answer session.

Our Agribusiness segment had a solid third quarter as we had good revenue growth and positive operating income, and in a quarter that normally generates a small loss for us. This is the result of the addition of the five grain elevators we recently bought in Tennessee, which doubled the bushels of grain sold in the quarter when compared to a year ago. We look forward to a strong contribution from this segment in the upcoming fourth quarter. The grain markets remain at a carry, and we expect all of our elevators to be full following the completion of harvest in the fourth quarter.

We are focused on greater utilization of these assets and believe this segment still has room for improvement relative to its capabilities. For the trailing 12 months we have produced 504 million gallons of ethanol, we generated $1.8 billion in revenues, $55 million of net income, and over $123 million in EBITDA. Jerry will go into more detail on our numbers a little later in the call.

As we noted in the earnings release, corn oil extraction has begun at our Obion, Tennessee ethanol plant. We are working to install the remaining five plants over the coming 5 to 6 months. This project we believe will have positive financial impact, generating operating income in the range $15 million to $19 million annually based on the production of 75 million to 90 million pounds of corn oil.

The corn oil market remains very strong as well. The recent strength in soy and heating oil has been the main driver behind this. We recently announced the acquisition of Global Ethanol, LLC. Global has two plants with annual capacity of approximately 157 million gallons. We are paying $0.94 on a per gallon basis for the production assets plus working capital. This demonstrates our ability to make acquisitions at attractive valuations utilizing a combination of our strong balance sheet and our stock. That position allows us to meet the objectives of ethanol plant owners, some who want to have a continued ownership interest in the industry and those who want immediate liquidity.

This transaction lowers our average cost of ethanol production assets, and enables us to achieve greater economies of scale in our risk management and back-office operations. We believe this acquisition will be accretive to 2011 earnings, and we expect to complete this transaction in the near future. In addition, we expect the integration to be seamless. We are ready to move these assets into our platform at any time without any lost production. We also believe there is further de-bottlenecking to do at these plants, and they are capable of producing more than the stated capacity.

Risk management remains a critical piece of our business execution. We generated approximately $17 million of operating income in our ethanol production segment. That is a $1.4 million improvement from the second quarter of 2010, and $3 million improvement from the third quarter of 2009. The ethanol margin curve continues to be inverted with the best margin in the nearby and 60 day markets. We have continued to lock in margins at each of our plants, and we remain committed to this proven practice of being absolute price agnostic.

As of September 30, we have locked in margins on 76.5 million gallons of ethanol production for the next 12 months. In addition, we have fiscal index sales on for the fourth quarter. With our hedging program, this positions us to quickly lock in margins when appropriate. The combination of these two components has a large share of our production spoken for in the fourth quarter.

From a macro perspective, the first step to higher blends of ethanol in our fuel supply was taken on October 13, when the EPA granted a waiver request for E15 for 2007 and newer vehicles. We are optimistic that the EPA will reach a similar decision for 2001 through 2006 model vehicles in the near future. We are also excited to see that NASCAR has chosen to use E15 blended fuel for the 2011 racing season. The E15 blend will be American-made ethanol from corn grown by American farmers. This transition takes NASCAR’s environmental commitment to the next level.

These steps by EPA and NASCAR further demonstrate that ethanol is a permanent piece of our energy supply. Over the last several years, producing ethanol has become much more modern and efficient, and we know compete on a global scale today as well. In fact, we anticipate US ethanol exports to reach an all-time high this year with over 300 million gallons shipped to foreign countries. These developments indicate to the world that this is an expanding sector of our economy, and the US renewable energy market, especially ethanol is potentially an attractive investment opportunity for the long-term.

Now I would like to turn the call over to Jerry to review our financials in more detail.

Jerry Peters

Thanks Todd, and good morning everyone. On a consolidated basis for the third quarter of 2010, we reported revenues of over $496 million, which is an increase of 37% over the third quarter of 2009. The increase was driven by ethanol production assets added in July of 2009, higher revenues from expansion of our third party marketing business, increased production from our existing plants, and the acquisition of the Tennessee Green assets in the second quarter of this year.

Consolidated gross profit was $32 million for the quarter, which is almost $11 million improvement over the third quarter of 2009. Again, this increase is attributable to higher ethanol production volumes, both organic and through acquisitions, as well as growth in profits from our Agribusiness segment.

Ethanol margins realized per gallon in the third quarter of 2010 were approximately even with the third quarter of 2009. Consolidated selling, general and administrative expenses were $15 million in the third quarter, which is $4.4 million higher than the third quarter of 2009. Most of this increase was due to the addition of the Tennessee Agribusiness assets, along with slightly higher corporate overheads supporting a larger base of business compared to a year ago.

Our corporate overhead, which broken out in the release, was $3.8 million for the third quarter, or about $0.03 per gallon, which is on target with our expectations.

Segment operating income, which is total operating income before corporate expenses was $20.8 million for the third quarter, compared to $13.6 million last year. This improvement is largely driven by the results from our ethanol production and marketing and distribution segments.

Taking a little more detailed look at each of our segments, first the ethanol production segment, we reported revenues of $250 million for the third quarter of 2010, which was an increase of almost $45 million versus the third quarter of 2009. The increase was driven by an increase in ethanol sold of almost 22 million gallons this quarter, compared to 2009. Operating income for the ethanol production segment was $17.2 million for the quarter, versus $14.2 million for the third quarter of last year.

We incurred approximately $7.9 million in depreciation and amortization in the third quarter for ethanol production, compared to $7.5 million for the third quarter of 2009. So for the second quarter of 2010, operating income before depreciation expense was $25.1 million for the segment, which equates to about $0.195 per gallon sold.

Our Agribusiness segment generated $98.5 million of revenue for the quarter, compared to $44.6 million for the third quarter in 2009. Revenues were higher as a result of the addition of the five grain elevators in Western Tennessee. Just a quick note here, harvest around our Tennessee elevators starts about a month to 45 days earlier than harvest in Iowa. We had a nice pick up of harvest activity during this quarter that helped to temper the typically lower third-quarter results we have seen in this segment.

Gross profit for the Agribusiness segment increased 4.2 million to 6.1 million for the third quarter of 2010, while operating expenses for this segment increased by 2.6 million.

Both of these increases were related to the acquisition, again of the Tennessee assets.

Operating income for Agribusiness for the third quarter of 2010 increased $1.6 million resulting in positive operating income of about 500,000 for the quarter.

For the marketing and distribution segment, revenues were $420 million for the third quarter compared to $318 million for the third quarter of 2009. Our volumes in this segment increased by 60 million gallons, or about 37% to approximately 222 million gallons for the quarter compared to the third quarter of last year. As our margins earned per gallon were consistent between the periods, these volume increases drove the increase in revenues, gross profits and operating income for the segment.

We also were pleased to enter a multi-year renewal of one of our large third-party marketing contracts earlier this month. With a good performance from each of our segments, consolidating operating income was $17 in the third quarter of 2010 compared to $10.8 million in the third quarter of 2009.

Interest expense was $6.2 million in the third quarter of 2010, which is about $0.5 million higher compared to the same period of 2009. The increase in interest expense is the result of higher short-term debt used to finance our receivables, and commodity inventories, both in our agribusiness, and our marketing segments.

Consolidated income before income taxes was $10.5 million for the third quarter of 2010, and our income tax expense was higher in the quarter as we made year-to-date adjustments for the effective tax rate of 24%, as our outlook for 2010 has improved from the start of the year, when we were using a 22% rate for income taxes.

The third quarter finished on a much stronger note than the quarter began as ethanol margins expanded during the quarter. As reported in our release yesterday, net income attributable to Green Plains was $7.4 million, or $0.23 per share on a diluted basis, compared to $5.5 million, or $0.22 per diluted share in the third quarter a year ago. Our share count increased mainly as a result of our 6.3 million share offering in March, when we raised approximately $80 million.

In terms of EBITDA, we generated $26.1 million, which was a nearly $7 million increase over the third quarter of 2009. For the last 12-months, and as Todd mentioned earlier in the call, we generated $123 million of EBITDA. Again I would remind you that EBITDA is a non-GAAP financial measure, and direct your attention to additional information in the news release, and on our website, including reconciliations to our GAAP net income.

Our liquidity position remains strong with $177 million in total cash and $18 million available under committed loan agreements, bringing our total available liquidity to approximately $195 million at the end of the quarter. We are pleased to have substantial liquidity available to us as we have seen increased commodity prices, higher volumes in each of our businesses, and acquisition opportunities.

Currently we are utilizing some of this liquidity for investments in the corn oil extraction project, which should total about $18 million, as well as the global acquisition, where we will invest about $32 million of our cash for the assets we are acquiring, as well as the working capital.

Our total debt at quarter-end was $470 million, including about $64 million used to finance commodity and trade receivables. Total debt related to the ethanol plant was reduced during the quarter to $378 million, which equates to about $0.76 per gallon of capacity. Now when we close the Global acquisition, we will add about $98 million of ethanol plant debt to our balance sheet, but that will actually lower our average ethanol plant debt per gallon to about $0.72 based on the capacity that we’re adding.

So our balance sheet remains intact. We’re committed to maintaining a strong financial position as we grow our business. And with that I would like to turn the call back over to Todd.

Todd Becker

Thanks Jerry. I wanted to provide a little more color on our current margin outlook. We experienced an expansion in the margin environment in the past few months with corn rallying, ethanol prices rallied faster, expanding ethanol crush margin during the quarter, and margins have remained steady to slightly better into the fourth quarter.

As we have generally seen in the past, the forward curve does not provide a realistic look into the future of this industry. From time to time, we’re successful in locking very acceptable margins beyond 90 days, but over the last year this has been the exception instead of the rule. It is important to note that as we approached every quarter over the last two years, the forward curve was similarly undefined, but always came together to provide opportunities to lock margins away.

2011 is shaping up to be a solid demand year with mandated gallons of 12.6 billion gallons of corn-based ethanol. E15 should be in the marketplace in the first-half of next year, and forward prices of ethanol are still discounted to gasoline between $0.10 and $0.20 per gallon on the forward curve.

In addition, we expect exports to continue as American ethanol is the most price competitive clean fuel in the global markets today. We will continue to watch Washington closely on the extension of the VEETC, or Blenders Tax Credit. But more importantly, we are pleased with the Growth Energy's Fueling Freedom plan, is gaining traction, especially with the administration. The EPA decision on E15 now starts to give certainty around the infrastructure and investment that needs to be made to allow consumer access to higher blends of ethanol.

The biggest challenge we have faced as an industry is market access, which is controlled by big oil. Consumers should be allowed to make a choice when they fill up their tanks, which we believe will drive more demand for US made fuel versus foreign sourced oil-based gasoline. Ethanol today remains the cheapest alternative to motor fuel in the world. Over the past several weeks, we have seen a rapid rise in the grain prices. This is due to several factors, all of which are not market-based realities.

We are currently harvesting one of the largest crops in history. While we may have tighter ending stock than expected, the USDA still reported over 900 million bushels of carryout in their last report, which is adequate after feeding our animals, producing food and producing fuel. All of this is while we’re still exporting over 2 billion bushels of corn to foreign countries, which by the way is the equivalent of 5.5 billion gallons of ethanol.

A troubling fact in the current agricultural markets is the record speculative length. This is grain ownership by various investment entities such as commodity index funds, pension plans and large speculators. These parties now hold 4.5 times our current US ending stocks, or almost equivalent to all the corn used for ethanol production this year. These groups will never consume or take delivery of any agricultural products, and have no incentive to do anything, but push prices even higher. This needs to be reconciled at some point, as the transfer of this ownership can be very disruptive to orderly markets for users and producers.

Now I like to give a quick update on our BioProcess Algae project. As we indicated in our earnings release, we have received final approval of the $2.0 million grant from the Iowa Power Fund's for Phase II of BioProcess Algae Grower Harvester technology. Construction is on schedule and we plan on having Phase II operational before the end of 2010.

Before we open it up for questions, I would like to leave you with this thought. We are a growth company. We take the task of investing our capital wisely in accretive transactions very seriously and we believe we have proven we can execute on this strategy. We expanded our agribusiness operations 63% in the second quarter of this year, and once we close the global ethanol transaction, we will have expanded our ethanol production capacity by 31% this year. We have grown our company while expanding our production capacity organically through our operational excellence programs and process improvement programs.

This was possible because of the team of employees, which once the Global transaction is completed will have grown itself by 37% from the start of this year. With this growth, it is most important than ever that we stay focused on margin and risk management, operational excellence and efficient back-office operations, all with safety as the number one priority.

We are not done growing. We want to continue to utilize our strong balance sheet and operating platform to consistently improve our business model. As I mentioned last quarter, we plan to continually improve. We have built an outperform model that is capable of maintaining positive cash flows even during cyclical downturns, as we believe longer-term prospects for all of our stakeholders are very exciting.

Now I want to thank everybody for calling in today, and I want to ask the moderator to start the question-and-answer session.

Question-and-Answer Session

Operator

(Operator instructions) And our first question comes from Michael Cox with Piper Jaffray.

Michael Cox – Piper Jaffray

Good morning. Congratulations on the nice quarter guys.

Todd Becker

Thanks Michael.

Michael Cox – Piper Jaffray

My first question is I guess on the forward curve, and judging by your comments it sounds like the majority of what you have locked in of this 15% of your production for the next 12 months is here in the fourth quarter. I just wanted to clarify that and just get your thinking on the potential to be locking in Q1 margins now, or you are just shying away from that at this point because of the tighter structure in the forward curve?

Todd Becker

Most of the production we have locked in is weighted heavily towards the fourth quarter. But we do have production in the first quarter of next year locked in, as well as the fourth quarter of next year locked in. In fact, the margin is V shaped, the curve is V shaped today. We have a really good margins on the front end of the business, and really good margins on the back end of the curve. In fact, Q4 2011 popped out, and we were able to lock the margins away in there as well.

So, while most of it is heavily weighted towards the front end of the curve, we still have some work to do this quarter, and we are starting to look at Q1 much more seriously now.

Michael Cox – Piper Jaffray

And how do you think about the – you had mentioned that ethanol prices are below that of commercial gasoline as you look out to next year, but if you look just the next few months we have a situation where ethanol prices are more expensive. Have you seen any implications to demand associated with that?

Todd Becker

No, not really. Actually it is very interesting because, as we talked about on the last call, you know the spot market is what it is, but I mean a lot of ethanol users don’t really operate in the spot markets. It is a very small percentage of the 12 billion bushels of domestic – 12 billion gallons of domestic demand. A lot of the users operate in the 60 to 90 day to 120 day markets out forward, and they look at the curve based on that.

So kind of what you are seeing on the front end is only affecting spot gallons out of the terminals, and really doesn’t impact a lot of the customers that we deal with. What was the second question Michael?

Michael Cox – Piper Jaffray

No. That answers it perfectly, and my last question if I could on the acquisition environment, first, what work need to be done to the Delta-T facility to get it up to the operating level that you guys are accustomed to, and then second, how does the recent improvement in ethanol margins impact sellers willingness to sell?

Todd Becker

To address the acquisition, in terms of the Delta-T, actually both of their plants, they have done a lot of work over the last 12 months in de-bottlenecking and getting to a much more consistent plant operation. And so while we are walking in, they have pretty good plans from an operating perspective. The Delta-T plant is actually a very well built plant out in Michigan. We do have some work to do, but not a lot to make the capital investment to get more volume out of there and operate a little bit cheaper.

I think what is interesting about that plant, what we really liked about it, because we typically don’t look at Delta-T plants is the economics. The economics for the plant make up for the operating differential between a Delta-T and an ICM, and that is one of those unique opportunities, because of the corn bases in Michigan and the ethanol bases in Michigan. So when we looked at Global, albeit it was a little bit away from strategy of staying away from Delta-T, this was a Delta-T plant that was very interesting from a proper perspective, and actually it is right up there with the ICM profit model. So from that standpoint, we are very happy with that.

Michael Cox – Piper Jaffray

And then just on the second part of the question on the sellers’ willingness to sell in an environment where ethanol margins have popped up a little bit, starting – continuing to talk to potential prospects?

Todd Becker

Yes, there are still opportunities out there. I mean, obviously, the industry is still extremely fragmented. There is still over 50% or 60% of this industry in either single of two plant owner’s hands, and we still believe that they are looking for the same opportunity that the Global Ethanol investors were looking for, which is partial liquidity with cash and ability to stay in the market with stock. And these guys have seen the cycles, and we have been in about a mid-pricing cycle in terms of the cost of assets, and we still believe that there is plenty of opportunities left, and we continue to focus our efforts on that.

What makes us unique is that the Global Ethanol investors really like getting Green Plains stock, as well as like getting cash, and that was very appealing to them, and we think there are more deals to do that way. And we think we are really one of the only companies out there that can offer such a compelling opportunity for plants like this, which is a stock that trades, a stock that has value in a company that is profitable, and the ability to get some liquidity as well using our balance sheet.

Michael Cox – Piper Jaffray

Okay. Thanks a lot guys.

Todd Becker

Thanks Michael.

Operator

Our next question comes from the line of Farha Aslam with Stephens.

Farha Aslam – Stephens, Inc.

Hi, good morning.

Todd Becker

Good morning.

Jerry Peters

Good morning.

Farha Aslam – Stephens, Inc.

Congratulations on a great quarter.

Todd Becker

Thank you.

Farha Aslam – Stephens, Inc.

Todd, in your opinion what was the factor that allowed ethanol prices to keep up with the price of corn over the last few weeks?

Todd Becker

Well, it is really not the last few weeks, it is really like the last six weeks. When we came out of the mid-summer doldrums, ethanol was sitting around $0.60 under gasoline. So, we always felt and we have always indicated to the market that corn could still rally, and ethanol will rally with it because of the incredible blend economics that are still available in the market today to the end-user.

And so sitting at $0.60 under gasoline was about $1.80 in corn roughly, just using the 3 to 1 conversion, even though it is a little bit worse than that. And so what we have seen is about $1.80 in a corn rally to where we’re at today, and ethanol trading at even money to gasoline in the spot market.

And that is really what enabled ethanol margins to hold, and actually even expand. And when they expand, it was on the days that ethanol was very sticky, and corn started to set back, and on those days we moved very quickly. Corn didn’t go straight up. They were days of up, and there were some days where it went down. And those days where we saw margins expand, we just continued to lock more of our quarters away, as well as what we had open for the third quarter.

So, overall it was just basically a price differential, and if you look at it on the forward curve with ethanol sitting at $0.10 to $0.20 under gasoline, we believe that even on the forward curve, if corn rallied another $0.50 or $0.60 the margins would hang intact, and we would have to see what happens after that. When in a lot of these Eastern markets, they will use ethanol all the way to even money to plus 45 over gasoline through the whole blenders credit, and a lot of that is because of the CBOB component, as we talked about in the past where seabob is getting shipped in terminals, and you need ethanol to leave, as well as just the overall blend economics on the octane as well.

Farha Aslam – Stephens, Inc.

And talking about the tax credit it is set to expire December 31, the likelihood of it getting extended this year, kind of how do you think that will work out?

Todd Becker

I think there is a lot of momentum in the lame duck, if we have a lame-duck session. There is a lot of momentum on all of these tax extenders, and we are still optimistic that with White House support, and with bipartisan support for the tax credit, we will make some progress on getting an extension.

If it is not by the end of 2010, we hope that it will be early 2011 when the new Congress comes in. But I think overall we have – we still have very broad administration support, and we have broad support bipartisan in the Senate and the House, and I think we can get something done, we just need a vehicle to get it done, and hopefully the lame duck will provide us with that vehicle.

Farha Aslam – Stephens, Inc.

Thank you. And my final question, I will pass it on is on our agribusiness segment, what kind of demand are you seeing for fertilizer out of those businesses?

Todd Becker

Well, we had very good nitrogen demand for next year. The demand is very good. The prices have rallied significantly, and the farmers moved to lock in during the rally. So, we saw great demand for nitrogen. We are seeing good demand for dry fertilizer at the end of this harvest season as well. So obviously that is not a huge business for us, but we do get to see in a very dense production area what the farmers are doing, and we’re seeing a very heavy investment in corn for next year.

Farha Aslam – Stephens, Inc.

Thank you.

Todd Becker

Thank you.

Operator

Our next question comes from the line of Lawrence Alexander with Jefferies.

Lucy Watson – Jefferies

Good morning. This is Lucy Watson on for Lawrence today. You mentioned earlier that you are moving more towards achieving yield gains in your plants, and discussed I guess margin improvement that a 100 basis point yield improvement would offer, would you mind or I guess, do you have an estimate for what the capital requirement would be to achieve 100 basis points in yield improvement?

Todd Becker

I will let Jeff address that and I will follow up with my answer as well.

Jeff Briggs

It is tough to pinpoint exact capital requirement. A lot of the yield projects that we will do could revolve around different enzymes to be using different process technologies in terms of yield recovery, optimization of some of the ethanol vapors that are running through the process as well. Some of it depends on the corn crop quality as well. One of the things that we’re finding out very early on in this year’s corn crop quality is good test weight and very low moisture, and so the ability of the corn crop to produce better ethanol for us – not produce better ethanol from worse, but higher ethanol rates, better DDG yields as a percentage of the overall crush margin will also be a positive factor as well.

So, when we look at kind of capital, the productivity improvements and the throughput improvements that we have done over the last year are very easy to identify in terms of capital expenditures. Some of the yield improvements are much more focused around operating processes, our operating excellence program, benchmarking, standardizing our “recipes” and figuring out how to get the most out of the biological processes in the ethanol plant.

Todd Becker

And just to follow up, just when you look at the corn test weight this year, when you have last year it was running 52 or 54 corn test weight, and this year you are running 58 corn test weight. Just the fiber in that kernel is more and we are going to get more DDGs this year than we would have last year. So that we are optimistic about. We don’t really know what the impact of that is, if anything just yet but we wanted to at least point out that there is some potential for that, but we have to wait and see if it plays through our process.

Lucy Watson – Jefferies

Okay. And moving to the agribusiness, how much grain did the new assets add to sales volume this quarter?

Todd Becker

What was the gain in the sales volume?

Jerry Peters

The total sales volumes nearly doubled, and I would say that that is approximately – most of that is due to the addition of the Tennessee assets. I wouldn’t say every bushel is, but the vast majority, 75% or 80% of that is due to the Tennessee assets.

Lucy Watson – Jefferies

Okay, and given the shift in the regional mix of those assets, how should we be thinking about seasonality in Q4 this year versus last year?

Todd Becker

Well, actually they will give us a contribution in Q4 as well, because the harvest ended early in Q4 down there one corn, wheat and beans, and in fact, beans are just ending now as we speak. So we start harvest down there early with soft wheat, and the move to corn and we end in beans. So it is a longer harvest season because we handle three commodities through the cycle, and so it will have some positive impact to Q4.

Lucy Watson – Jefferies

Okay. And just one more question, what are your expectations for operating margins once the Global Ethanol acquisition is completed and integrated?

Todd Becker

Well, the Global assets are very nicely into our model. In fact, they are not our best margins, but they are not our worst margins for our plants. And so it is right into the mid-range, and so we would expect them to stay consistent with the overall average of our full platform, and not to have any negative impact to the overall average, as people think about how we manage margins.

Lucy Watson – Jefferies

Thank you very much.

Todd Becker

Thank you.

Operator

Our next question comes from Ian Horowitz with Rafferty Capital.

Ian Horowitz – Rafferty Capital

Hi, good morning guys.

Todd Becker

Good morning Ian.

Ian Horowitz – Rafferty Capital

Congratulations.

Todd Becker

Thank you.

Ian Horowitz – Rafferty Capital

Hi, just to go after Lucy’s last question with the Global assets, when should we kind of start seeing these kind of hit the income statement?

Todd Becker

We are moving very quickly to get these closed. Jerry, you want to make a quick comment on that?

Jerry Peters

Yes, I think once they are closed they will be fully contributing kind of as Todd said on a basis that is very close to our average overall existing platform. We will have a small amount of closing cost that we will have to expense, but that should affect the fourth quarter some. But basically otherwise they are contributing immediately.

Ian Horowitz – Rafferty Capital

So, if we kind of plug them in halfway through the quarter, would that be too presumptuous or is that kind of a fairly good estimate of when we will see them?

Todd Becker

Well, I mean – Ian, we haven’t closed at this point, and we are basically halfway through the quarter. So I think you got to kind of put your own date on there as far as when we will close, but then like I said, once we close and they should be fully contributing to the quarter.

Jerry Peters

Yes, less is small model.

Todd Becker

The closing costs, right.

Ian Horowitz – Rafferty Capital

Okay. And we have been hearing a lot from the people throughout the industry about the seemingly huge discrepancy right now between, and you kind of mentioned it, between the financial side of corn and the cash side of corn. Can you give us a little bit of color on what you are seeing locally around your facilities, as bases as wide as it seems in the rest of the markets?

Todd Becker

I mean the Iowa truck corn basis is sitting in the 50 to 60 under range for spot corn in the grain elevator. Ethanol plants haven’t been able to quite buy it that cheap, but that is definitely somewhat similar to the wheat industry. There is a small disconnect between financial and physical in that correlation, but overall, I mean what we have – the structural issue with corn markets that I mentioned is last week they were 840,000 contracts by the index for large speculative length in the market.

If you look at that again, basically the other side of that with all the short hedges from the commercials, because the commercials are net short that much. What we are talking about is that has to get reconciled. The users are not linked in the corn market in the United States. In fact, transferring that ownership to users will be very, very difficult at these levels. So we will have to wait and see how that reconciles itself. But we will see if we can get the convergence that these markets are supposed to have between physical and financial this year, and we will have to wait and see on that one.

Ian Horowitz – Rafferty Capital

We also saw a slight sequential decline in gallons, is that just a calendar issue or is there anything going on there?

Todd Becker

Well, part of it Ian is the fact that the summer months are a little bit tighter on our capacity just because of heat exchange. Jeff, maybe you want to comment about that.

Jeff Briggs

Yes, two things. I mean, number one you got to look at the seasonality of some of our shutdowns that are always planned in various quarters. We try and balance those out between first, second, third and fourth quarters to do a little bit smoothing. They are kind of chunky sometimes. Specifically in the summer you have high heat indexes, places like Tennessee, Nebraska and Iowa, takes a significant amount of the cooling capacity, which does affect some capacity. Having said that, July was a record month for us platform wide, and so you take some of the good with the bad in trying to manage through that process.

You go into September, October and you see an immediate cool down and an immediate return to capacity, but there is a little bit of seasonality in capacity driven by that heat index and some of the load in the plant.

Ian Horowitz – Rafferty Capital

And then – the marketing and distribution margins, operating margins, have just kind of continued to clip along and increase sequentially as well as year-over-year, as well as just the overall profitability of that segment. But what are we seeing, why is the margin doing as well as it is, what should we be looking at kind of on a steady state basis for this business, and when will we see that steady state?

Todd Becker

Well, you know, the plants that are signed up with marketing agreements with us have produced more, and as we de-bottleneck our plants, they have done a very good job with de-bottlenecking their plants. So we have seen a growth in their production, which we think they are hitting same kind of point where we are, where a lot of low hanging fruit was taken care of. So we think we will get more to a steady-state here on that.

But once our assets continue to perform well for us, in fact one of the reasons we are able to attain margins better at our ethanol plants is because we have really utilized that platform much better than we have in the past and move our own gallons through there. And that was really the ultimate goal of that platform, which was to provide a third party service to the industry, but also utilize those to get to market that increase our margins at our own plants, and that worked very well for us in the quarter as well. A little bit of both, but I don’t know that you will see significant upside in that segment from these types of numbers.

Jeff Briggs

Well, the only exception to that would be the fact that once we close Global, then we will be paying – Global will be paying our marketing group a marketing fee. So, you will see some profit reported there, but of course it is eliminated in consolidation.

Ian Horowitz – Rafferty Capital

All right. So that is a cash number. You are not going to see a different margin profile?

Jeff Briggs

No. That is right, just higher volumes.

Ian Horowitz – Rafferty Capital

Okay. And last question, I will get back in queue, I think Farha asked the question about the VEETC, and you seemed pretty optimistic, but a little bit more color on that. Do you see this kind of a one year extension and then total relook at the policy kind of on the growth energy philosophy, or are kind of feeling that this is going to be more of a multi-year extension, and do you have any guesses as to the cents per gallon we are looking at?

Todd Becker

Yes, I don’t think the immediate extension will be a multi-year extension. And I think the cent per gallon will be lower. But basically we have very good administration support for the Fueling Freedom plan. The White House has met with the industry has been reported. They are very focused and committed to the industry to try and have a program in place that just fills that infrastructure, build more blender pumps, more flexible vehicles.

The USDA just had their press conference yesterday, and the secretary announced a $250 million initiative to build on blender pumps across the United States, which I think is a step that also came out in favor of an extended tax credit in 2011, and as well as you have seen some things about direct producer payments beyond that for a multiple year period and then that is the end of it. It will phase out.

So I think it could be any and all of the above. We still have to wait and see, but we are optimistic it will get done, but we have got a lot of wood to chop just to get to that point.

Ian Horowitz – Rafferty Capital

Great guys. Congratulations again.

Todd Becker

Thanks Ian.

Operator

Our next question comes from the line of Matt Farwell with Imperial Capital.

Matt Farwell – Imperial Capital

Hi, good morning, and great quarter. I just wondered if you could discuss the – you talk about the buying and the futures of institutions, but there was a marked decline in the expected yield by the USDA, I just wondered if you could give some more color on that, and do you think that what we are looking at now in corn can be seen as somewhat of a new normal in terms of prices being significantly higher than they were last year, given the higher input costs that farmers are seeing with fertilizer and the like?

Todd Becker

Yes, basically I can answer yes to all of that. I mean, obviously yield had an impact, and the ending stocks to use ratio has an impact. And we have seen a massive buying program out of that sector of speculative money into the market, and if you overlay price over index fund position, you would see there is a direct correlation between high and low prices, and high and low positions. We can get you those charts as we have them, we study them.

But you are absolutely right, there are still fundamental issues around this market. We have got to get through the next corn yield number and see what that is. And I think that that is making everybody a bit nervous to see this corn market break. But I also think that there is basically – when you get the prices like this, you always have to look at replacements in the world, and when we got to those high wheat prices, the world started to decide do they really need all that wheat. Well, do they need the wheat, what are my replacements, what can I do, can I grind a little extra wheat, and not buy anything.

We saw a pretty good price decline in wheat since the highs and that is a more tenuous situation I think than even corn, but wheat is a feed grain around the world. It is really not a food grain in general. So, I think corn is going to have to deal with the same things. It is going to have to ration something here, and the question is what. Is the easiest thing to go after the ethanol bushel, because it is not hard to find a couple of hundred million bushels of extra supply in ethanol if you wanted to really push and rationalize the industry, and take the marginal production out.

They might go after that. Do we just export less? I mean our export program, a lot of people are over 2 billion bushel still. Two years ago we exported 1.8 billion, or two or three years ago, and even maybe you could find a couple of hundred million bushels there in fact. Exports this week were much lower than the market expected, and they were very disappointing. So, the role of price is to find that point where you have step-by-step rationing of some of these programs, and I think exports is the first place to go after.

Do I believe it is a new normal? Yes, I think it is partially the new normal. I mean I am a commodity mean reverting guy as I have said on many conference calls, but this one might take a little bit longer to play out. We have got to get through this yield report. We got to get through the final crop report in January. We got to get the crop planted, and we have got to get the world producing a lot more wheat. And remembers it takes – a wheat crop disaster can be healed in about eight months. There are two more harvests around – we harvest wheat around the world every four months.

Corn crop cycle takes a little bit longer, but the high prices in the world today will prompt a lot of planting around the globe, especially in wheat, and that could temper ultimately the corn demand around the world and drive our exports lower. But for a while here, I would say we are not going to have a significant break in corn, until we see some systemic change around the world on feed grain supplies, which by the way world feed grain supplies today are adequate. And so that is a thing we have to deal with. We will have to deal with our domestic situation first.

Matt Farwell – Imperial Capital

Has the – overall increase in commodity prices weakened some of the smaller players, ethanol players in your opinion, given the higher working capital needs?

Todd Becker

No, it is interesting because higher corn prices have led to higher ethanol prices. So your cash flows if you have, depending on what your cash convergent cycle is, ours is very quick. As we mentioned, we convert in about seven days in our collection period, while the industry is 25 days plus. And so for us, high prices really haven’t – our ethanol production segment has not been stressed at all from a working capital perspective. But I do think there are others out there that with the longer cycles of collection times have a little bit of stress right now, and are considering one other option.

But today from our standpoint, we haven’t had any stress in our ethanol production segment. Would that be correct Jerry?

Jerry Peters

Yes, it is absolutely right.

Matt Farwell – Imperial Capital

Well, thanks for the color, and then a great quarter again Todd.

Todd Becker

Thanks. Thanks for the call.

Operator

Our next question comes from Paul Resnik with Olympia Capital Markets Group.

Paul Resnik – Olympia Capital Markets Group

Good morning.

Todd Becker

Good morning.

Paul Resnik – Olympia Capital Markets Group

It is a good morning. I would like to go back to the marketing and distribution profitability, because those numbers really did change at basically the same volume from the second quarter to the third quarter, the operating income and marketing distribution went from about 2.4 million to 3.25 million. So, going out, I mean I can accept this as the new normal as it were for margins. And do you see any further expansion in the margins in marketing and distribution?

Todd Becker

Well, the only expansion will be from volume, a bit on volume in terms of the Global assets that we acquire, and then that will lead to maybe possibly a little more in terms of EBITDA, but I think that this is a good number to key off of. I wouldn’t get too optimistic from here unless we add more marketing plants, or see some big change in the Blendstar business and in fact from a standpoint of the 3.2 million in operating income, we basically think that is a pretty stable solid number.

But that could be high or low just depending on how our plants operate in any certain quarter. So, I would say plus or minus $500,000 to $700,000 in that segment, and I wouldn’t be on the optimistic side of that.

Jerry Peters

Again volumes driven primarily.

Paul Resnik – Olympia Capital Markets Group

From here on volume driven?

Jerry Peters

Right.

Paul Resnik – Olympia Capital Markets Group

Okay. Just so that I heard it right, you are looking for a 24% tax rate this year?

Jerry Peters

Right. We have adjusted it to 24% through the year-to-date numbers, and so that is our outlook right now.

Paul Resnik – Olympia Capital Markets Group

Okay.

Jerry Peters

Again, the tax rate is driven by the ultimate level of profitability. Paul, I don’t know if you recall the conversation we have had about that in the past. But as our profitability goes up because we’re reversing valuation allowances, our tax rate will also go up, and the converse is true of course as well.

Paul Resnik – Olympia Capital Markets Group

Okay. Thanks. But for at least the end of this year we’re going to stay it looks like 24%. And lastly, on E15, you know, there is a lot of controversy regarding what level of approval is required before there is substantial adoption among the distributors of E15, and I know we have talked a little bit about that in the past, but if you could just go over that again, what you think is going to happen. Let us assume we go to the 2001 renewal which is coming up pretty soon, what do you think are the prospects for adoption.

Todd Becker

Well, we believe the prospects for adoption are very high. 2001 renewal represents about two thirds of our U.S. gas demand yearly. At that point, it is a real market. There are a few things that have to happen around the one-pound waiver, around some state licensing requirements and regulations, and registration, and all of that has to kind of happen, but we believe that – we are optimistic we will see a positive result in December.

And then remember the car – the fleet changes 14 million cars every year. So in two or three years, 2001 renewal should be about 80% to 90% of our fleet, anyways. So it is going to be a multi-year adoption. We think it will start in 2011, as soon as we get through the 2001 and get through the States, and then get through the one-pound waiver and then I think we have a market. But I am confident that we will get all of those things done. Then it is going to be fighting for the island, and today some of the challenges we face is that a lot of retailers don’t control the island.

Big oil controls the island, and in most of these retailers’ arrangements, they have got to fight to get a blender pump on, and we’re going to work very hard to try and get that situation remedied, because big oil won’t allow access to the blender pumps. And so – but there is a lot of independents today that are standing by, and waiting for all of these things to happen to put in the E15 blend, and we’re very, very optimistic that that’ll happen.

That’s a long-term benefit to our industry. It’s not an immediate demand up-tick. It is a long-term ability to get 7 billion more gallons of ethanol onto the market, and cut out another foreign import of oil out of our fuel supply. And as with anything it just takes time, but there has been more testing done on vehicles for E15 than there ever has been in the history of any fuel additive in the United States, and so we’re very confident that those tests will hold.

Paul Resnik – Olympia Capital Markets Group

Any thoughts about testing for the older car fleet, any possibilities there?

Todd Becker

You know, I think we are going to continue to push for that but as I said this – if we get to 2001 it’s about two thirds of the US gas supply, and the fleet turns 40 million cars a year, and so with that said you know, in two or three years it really won’t be necessary to do. You know, so from that standpoint, I think the key is that when you have two thirds of the US car fleet that can take E15, the market is big enough at that point to start restickering pumps.

Paul Resnik – Olympia Capital Markets Group

Thanks

Todd Becker

Thank you.

Operator

Our next question comes from the line of Gabe Kim with Wellington Management.

Gabe Kim – Wellington Management

Hi guys, good morning.

Todd Becker

Good morning Gabe.

Gabe Kim – Wellington Management

I jumped on the call a bit late, can you just run through how much of your forward production you sell forward?

Todd Becker

Yes, what we said is we had 75 million gallons locked in at the beginning of the quarter, most of it was heavily weighted towards the fourth quarter of 2010, but we do have some locked in the first quarter of ’11 and the fourth quarter of 2011 as what we saw was a V-shaped margin curve, and we’re able to lock in Q4 2011 market that’s similar to Q4 2010. So we’re able to do some of that. We also have a large amount of our – just our physical production sold in total for the fourth quarter, just waiting the price if the margin pops and what we do is immediately price the Index sale using hedges in corn and ethanol.

Gabe Kim – Wellington Management

So the EBIDTA for the gallon is what on this forward curve?

Todd Becker

We don’t typically give that out.

Gabe Kim – Wellington Management

Okay fine. Then the other question is the margin opportunity that you got right to sell to Q4 of ’11, why do you think you got that opportunity because I normally sort of think that if you’re lucky you will be able to get you know, some stuff out, maybe, one or two quarters forward, how are you able – what do you think changed this quarter that you’re able to get some stuff locked out all the way to Q4 ’11?

Todd Becker

It is the structure of the corn curve. You have an inverted corn curve between now through – now from July that carrying from July forward is inverted. So you’ve got a nearby corn at $5.60 or $5.70, and you’ve got the third corn at $5.10 to $5.20, and ethanol is flat from 2011. So it provided some opportunities. In fact, we did a huge amount, but it was nice to see and there actually still is opportunities in Q4 2011 to lock the margins away, but again you got to be able to find the physical demand out there first, and we can buy the physical corn, and then as well as and after that look at the index sales, but we continue to focus on that quarter.

Gabe Kim – Wellington Management

Okay, and then my other question was just on the export of ethanol, given the competitiveness of the US stuffs relative to the other stuff out there, it was actually very competitive earlier in the year and we did export a lot but I’m wondering why didn’t we export more. What’s kind of holding up the export?

Todd Becker

What you have in the export market is that a market that’s about 1 billion to 1.5 billion gallons, somewhere in that range today, and it’s going to grow every year. I mean, we’re starting to see adoption around the world, and in that 1 billion or 1.5 billion, I don’t know the exact number, I can get that for you though, 0.5 billion is committed already out of Brazil, which is a long-term supply contract to Asia and other places around the world, and the other half of billion is open.

And so we go after what U.S. has gone after are those open uncommitted countries that can go to the cheapest source, and that cheapest source is ethanol, was ethanol, American ethanol, as well as it looks like that on the curve all the way through ’11 today is still the cheapest source based on the high prices of sugar even with corn at the prices that we’re at. So that is really what drove it. I mean, there is a nice export market available and at $0.30 of sugar and plus $0.35 sugar we are more competitive around the world using corn than Brazilian ethanol in the world markets today.

Gabe Kim – Wellington Management

Okay, great. That’s it. Thanks.

Todd Becker

Thanks.

Operator

Our next question comes from the line of Doug Millet with Perella Weinberg Parnters.

Doug Millet – Perella Weinberg

My question was just answered. Thank you.

Todd Becker

Thank you.

Operator

Our next question comes from Dan Chandra, DW Investment Management.

Dan Chandra – DW Investment Management

Hi guys. Good morning, I mean, good afternoon. Maybe hitting on to what you were just talking about, obviously we are in a great position vis-à-vis Brazil in the Global Ethanol market right now, but I mean a lot of that is because Brazilian ethanol producers are shifting over production to sugar, given the high prices, and so what are your thoughts on whether that will normalize and sugar will go down and then they’ll come back onto the market, and likewise. Can you, I guess that feeds into my next question, which is there has been talk about moving the blenders credit to production credit, which is great for you guys, but I guess to a certain degree that might go hand-in-hand with removing tariffs, and if so do you feel that down the road we might see a competitive threat from Brazilian ethanol coming into this country.

Todd Becker

Okay, let’s first talk a little bit about the Brazilian competitiveness based on price. Basically both over about $0.15 or $0.16 a pound on sugar, the mills start to take the cane and produce sugar, and the ethanol production does not compete very well, and now we’re sitting at you know, $0.30 plus. I am looking at the share market in the last day or two, but sitting at much higher level than that we got ways to go before we believe sugar can be competitive, sugar-based ethanol will be ultra-competitive to US-based ethanol in the world market.

So you just got to kind of watch that sugar price and see if it breaks very hard. In addition, one thing you got the kind of keep in mind is that when we produce 700 million gallons or 670 million gallons of ethanol next year at Green Plains, we are actually larger than any ethanol, combined ethanol producer in Brazil today. So you think the US industry is fragmented, the Brazilian industry is extremely fragmented as well, and a lot of their ethanol really can’t move anything but domestic for a lot of reasons including their price support on gasoline that they keep in place, and so from that standpoint, you know, I don’t think that we have a huge worry that they’re going to go after the, because they don’t have an exportable surplus today like they had years ago because their own internal demand is growing and they can’t even service that with what they have today, and it’s all because of the high price of sugar and the ability to, the ability of the internal demand for ethanol.

When we look at the blenders’ credit moving into a production credit, we don’t know that’s going to happen or not. We’re really not – it’s not what we prefer as an industry or as a company is to go to a direct producer credit but if that’s the case then we’ll have to deal with that obviously, but if that takes away the import tariff, we don’t actually believe there is an exportable surplus that can hit the United States market big enough that will have an impact, especially since what we will see by the time that happens is next year we are going to 12.6 billion on a mandate, and the year after that we’re going to 13 billion on a mandate and E15 is coming on and Brazil doesn’t have a huge exportable surplus to send to United States over and above what the world needs, and so from that – and they don’t also have the ability to expand their production significantly at this point in any kind of fast timeframe. So it really doesn’t impact my thought process around ’10 or ’11 – 2011 or 2012.

Dan Chandra – DW Investment Management

So from that perspective you know, given that RFS too is going up each year. I mean, obviously there is a lot of capacity coming on. We have a lot of capacity now, and we’re meeting that through additional exports above our domestic consumption, but obviously the new capacity is being built. Can you talk about how you see supply demand over the next 6 to 12 months?

Todd Becker

Yes, there is definitely some new capacity that will still come on, but it’s not hugely significant anymore. There is a few plant that are remaining to get started here, and we think that there is demand, it’s good for those plants with the expected 12.6 billion gallon mandate next year, and exports and then after that you know, we don’t see a huge amount of new builds coming on, a lot of the improvement to meet the 15 billion gallons will come from situations like we’ve done here, which has increased our production both through the bottlenecking and then next through process improvements. And so no, I don’t think we’re too worried about oversupply at this point especially since we’re still at a discount to get going.

Dan Chandra – DW Investment Management

Thanks very much and congratulations again.

Todd Becker

Yes, thank you.

Operator

Our next question comes from Brent Rystrom with Feltl.

Brent Rystrom – Feltl & Company

Good morning. Thank you for taking my question. Couple of quick things, the really robust pricing that we are trying to generate now would imply that people might be doing more applications this fall than next spring. Are you seeing that in your business?

Todd Becker

No, it’s really focused on next spring Brian. It’s – the farmer has bought far ahead, has brought ahead, took advantage of some of these lower prices. I say the farmer in Iowa bought most of his nitrogen before we moved into 300s, and albeit mid 250s to 260s to 270s is still high, but relative to what the replacement is today or what you know, the nitrogen producers are trying to get. I think the farmer is pretty well covered for spring, but no it’s not really a nearby demand.

Brent Rystrom – Feltl & Company

Okay. One of the things I’ve seen suggest that in Iowa one of the major issues with the yields there, maybe continuous cover corn. You have any thoughts on that. You know, it may have ramifications for positive and negative for both the ethanol and agronomy businesses, any thought on that?

Todd Becker

Do you mean when they follow up corn with corn?

Brent Rystrom – Feltl & Company

Well, basically you just give your plan corn year after year after year. So when you look at the yields this year they were about 20 to 25 bushes lower in Iowa on continuous cover corn than non-continuous cover corn.

Todd Becker

Yes, I mean, they did very well on that for the last couple of years and they probably got hit a little bit this year on that, and we’re seeing that and then that’ll flip those probably into soybean next year, but ultimately we think that the acreage will still expand for next year for corn based on the current economics and but that won’t necessarily be a corn issue?

Brent Rystrom – Feltl & Company

Okay, do you have a sense for how much do you think the acreage might expand? You think it’s a couple of million, you think it’s 5 million acres?

Todd Becker

I think it’s towards the higher end of your range.

Brent Rystrom – Feltl & Company

Okay. Well, thank you very much.

Todd Becker

Thank you.

Operator

Our next question comes from Matthias Ederer from Goldman Sachs.

Matthias Ederer – Goldman Sachs

Hi good afternoon. Thanks for taking my question.

Todd Becker

Thank you.

Matthias Ederer – Goldman Sachs

And great quarter. I had a question in relation to the $98.5 million of debt that you are assuming as part of the Global action. What’s the duration on that debt, and also can you give us some guidance on the pricing and when it is combined with the existing clearly very attractive debt that you have on the existing plants.

Jerry Peters

Sure. Yes, the overall term of it, it extends out into about six years of average. There is some maturity in 2013 in particular, but otherwise it’s a fairly level amortizing stream on that debt. The rates are pretty comparable to our existing portfolio overall, most of the debt is LIBOR based. I think there’s about 17 million or so that is fixed-rate because that’s a little higher rate, but it’s good to have a little bit of that locked in. So – but I think overall in total the average cost should be very close to our existing portfolio.

Matthias Ederer – Goldman Sachs

Okay, that’s helpful. And then in relation to your forward hedging, if I remember them correctly came September this year you pretty much have your Q3 some and didn’t have much less to do in terms of getting ethanol out of the door. Now clearly September was the month with the strongest margins. Is it fair to assume that we can expect those margins to come through in the fourth quarter?

Todd Becker

Actually margin has expanded from early in the third quarter, and we always have a little bit of production to sell, when margins expand like they did, it’s meaningful for us as well as we’re able to achieve better margins that plants utilizing our Blendstar platform that we have investments in. And so we actually saw the expansion earlier than September, but margins did really go hard in late August and September.

The markets are still inverted, the best margin is still in the spot, and those margins are not that much different than what we saw kind of midrange quarter that we just came out of, and we still see November as pretty good margins as well and that inverse continues to roll forward. You’ve got ethanol at a basically a 10 cent inverse from October to November and another $0.08 inverse from November to December.

And so that fee of our corn is flat during the quarter, maybe some basis strength at each of the plants. And so that’s why the market remains inverted, but what we’ve seen over the last year is that front continues to roll forward because the market needs the ethanol because it needs the fuel supplies in the United States.

Matthias Ederer – Goldman Sachs

It’s very helpful. Thanks a lot.

Todd Becker

Yes, thank you.

Operator

Our next question comes from the line from Michael Cox from Piper Jaffray.

Michael Cox – Piper Jaffray

Hi, just one quick follow-up question. As it pertains to your comments on the price of corn and market realities, which I don’t disagree with, one question from the release you outline your forward contracting and corn is 19%, ethanol 15%. I’d just be curious how that fits into your thought process of where you view these commodities moving over the next few months?

Todd Becker

Well, yes, you are seeing that. I mean, that’s not that uncommon to have 2% or 3% deviation in those numbers, but it’s not really reflective of any significant risk that we take. It still stays under the bar limits that are established, and so from that standpoint that is just a picture in time, and it might be even on that day that we bought a lot of corn from the farmer and the next day we sold the ethanol.

So some of that is even day-to-day movements just because we might sell ethanol that night, and not buy the corn or we might have bought corn that night, and not sold ethanol the next day, and really it does fluctuate by a 1% or 2% but that is not a significant risk. That percent – that number represent less than $500,000 daily VAR move, and our value at risk move in our business, and that is a very conservative view or conservative limit for our business this size.

Michael Cox – Piper Jaffray

Okay, that sounds good. Thanks.

Todd Becker

Okay, thank you.

Operator

And next online we have Lawrence Alexander from Jefferies.

Lucy Watson – Jefferies

Hi this is Lucy Watson again. Just another quick follow-up, how much of your ethanol volumes are exported or do you have a way to track that?

Todd Becker

Not very much actually. We have one plant. So you have to be able to make this specification. Today we have one plant that can make this specification and that’s in Superior, Iowa. The plant in Riga, Michigan that we’re purchasing we will be able to make this specification there, and we are converting Bluffton, Indiana for 2011 to make this specification, but the opportunity continues for us to shift.

We’re not sure. But we’re seeing a lot of – you know, basically when you make the spec sometimes you have to slow the plant down, produce less ethanol and you got to get paid for that. So there is a net gain to the export specification, but the way that we have been hedging our margins out, sometimes we aren’t able to take the opportunity of that, but we are set up to increase our volumes, but it’s de minimis compared to our total production.

Lucy Watson – Jefferies

Thank you.

Operator

And our final question comes from the line of Paul Resnik with Olympia Capital Markets Group.

Paul Resnik – Olympia Capital Markets Group

Just a quick follow-up. There’s a lot of talk about the corn crop, well, everybody was talking about the weather, the results are kind of a secondary story this year with Monsanto's hybrid corn. They say they’ve got that I hope they do, they say they have that fixed. I mean do you basically expect that you know, we’re going to get back to the trend of trending higher corn yields pretty quicker.

Todd Becker

Yes, I think so. I mean I think this was an off year. We had very hot weather in the late summer and little bit, almost too much rain in the early summer, and that really just did not give up an optimal growing season. I can’t comment on Monsanto's impact to the corn crop. So I really don’t know, but I will tell you that we would expect the uptrend to continue in corn yields for the next several years.

Paul Resnik – Olympia Capital Markets Group

Thank you.

Todd Becker

Okay, thank you.

Operator

And I am showing no further questions in the queue, and I’d like to turn the call back over to Todd.

Todd Becker

I want to thank everybody for coming on the call today. Obviously we’re very happy with the quarter we just completed, and we’re very optimistic about the business that we’re running today. We’re excited about closing our transaction soon on the global business, which solidly positions us as one of the major players in the US ethanol market. We are optimistic on the demand side of the business and getting this fuel into wider reaches of the gasoline pool and the motor fuel pool, and we’re excited about the position that we’re in today in terms of business and we think we have great opportunities ahead of us, and we’ll continue to hopefully continue to grow this business and grow from there. So we appreciate you guys coming on the call today, and we’ll talk to you next quarter. Thank you.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program. You may all disconnect. Everyone have a great day.

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