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Green Plains Renewable Energy Inc. (NASDAQ:GPRE)

Q1 2011 Earnings Call

April 28, 2011 11:00 AM ET

Executives

Todd Becker – President and CEO

Jerry Peters – CFO

Jeffery Briggs – COO

Steve Bleyl – EVP – Ethanol Marketing

Jim Stark – IR

Analysts

Mike Ritzenthaler – Piper Jaffray

Laurence Alexander – Jefferies

Eric Gottlieb – Stephens Inc

Matt Farewell – Imperial

Brent Rystrom – Feltl & Company

Ian Horowitz – Rafferty Capital Management

Matthew Farwell – Imperial Capital

Farha Aslam – Stephens Inc

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Green Plains Renewable Energy First Quarter 2011 Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to introduce your host for today’s conference, Mr. Jim Stark. You may begin.

Jim Stark

Welcome to our first quarter 2011 earnings call. On the call today is - Todd Becker, President and Chief Executive Officer, Jerry Peters our Chief Financial Officer, Jeff Briggs, Chief Operating Officer and Steve Bleyl, EVP of Ethanol Marketing.

We are here to discuss our first quarter 2011 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 – www.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 involve risks and uncertainties, Green Plains’ actual results could differ materially from management’s expectations.

Please refer to page 2 of the website presentation, and our 10-K and other periodic SEC filings for information about factors that could cause different outcomes. The information presented today is time sensitive and is accurate only at this time. If any portion of this presentation is rebroadcast, retransmitted or redistributed at a later date, Green Plains will not be reviewing or updating this material.

I will now turn the call over to Todd Becker.

Todd Becker

Good morning and thank you for joining us today.

We produced solid financial results for the first quarter of 2011 considering the market dynamics the industry faced at the start of this year. For the first quarter, we generated $812 million dollars of revenue, $7.7 million dollars of net income and $0.20 in diluted earnings per share. That extends our string of profitable quarters now to eight all at the same time we more than doubled our ethanol production and increased our grain storage capacity by over 70 percent.

All of our segments were profitable in the quarter and we reported $24.6 million dollars of operating income before corporate expenses. Total EBITDA for the quarter was approximately $32 million dollars.

We sold and produced 172 million gallons of ethanol and with the successful close of the Otter Tail ethanol plant acquisition at the end of March; we are now producing at slightly over a 2 million gallon per day rate or 740 million gallons on an annual basis. That is equivalent to more than 1,400 gallons of motor fuel per minute, or enough to fuel three average drivers for a year.

We saw a $1.4 million dollar positive swing in operating income for our agribusiness segment in the first quarter compared to last year. What was a half a million dollar operating loss in the first quarter of last year was turned into $900 thousand dollars operating income in the first quarter this year. We are making progress in reducing costs and improving profitability in this segment. We are still on track to hit operating income for this segment of between $8 and $10 million dollars for 2011 as indicated previously.

As we indicated in our earnings release, we are investing capital to expand our grain storage capacity by 3.6 million bushels this year. These construction projects should be completed by the fall harvest and will allow us to originate more harvest bushels directly from our farmer customers. Once completed, we will own a total of over 43 million bushels of grain storage with 33 million at our agribusiness operations and the remainder at our nine ethanol plants. We continue to explore additional internal expansion projects as well as actively look for acquisition opportunities.

I want to give you a few numbers that outline our presence as an agricultural processor and handler. If you combine the grind at our production facilities with the handle at our elevators over the next 12 months, we will process over 300 million bushels of corn or over 2% of the U.S. corn crop.

We will also produce and distribute more than 2 million tons of animal feed. We believe that the combination of grain handling, processing and animal feed production and marketing firmly place us as one of the leaders in the US agricultural value chain.

Marketing and distribution operating income was up 250 percent quarter over quarter for the first quarter of 2011. This segment’s significant growth in operating income is primarily the result of producing and selling 10 million pounds of corn oil in the first quarter of the year.

We now have six plants producing corn oil and expect two more plants online by the end of the second quarter and the extraction technology will be installed at Otter Tail in the third quarter of this year. As a reminder, corn oil trades at a discount to soy-oil and we do not expect that relationship to change, yet we are still achieving better than expected returns on this investment. Operating income related to corn oil should double again in the second quarter as we ramp up production. When fully implemented we expected to produce at least 25 million pounds per quarter.

We have continued to focus on our operating costs and efficiencies. Remaining a low cost operator is important for a commodity processing business, particularly in light of the current dynamic margin environment.

The ethanol margin curve is compressed currently in the middle of the year with little visibility of acceptable margins. The pattern is similar to last year at this time and we have needed to be patient, particularly with the third quarter. Our best opportunities for locking margins have been within the second and fourth quarters of 2011.

Let me give you some data that demonstrate the results of our margin management strategy for Q1 production. We often go back and compare the daily average spot crush for our platform with the actual realized crush during the quarter. During the first quarter, the daily average platform crush was in the high single digits, yet we achieved $0.18 cents per gallon as represented in our financial performance for the quarter. The main reason for this out-performance was our ability to lock margins away long before we got to the start of the quarter. We had very good visibility for Q1 margins during third and fourth quarters of last year and we moved quickly to lock margins away. Our strong balance sheet allows us to use all instruments available in physical markets. As we focus on finishing up the second quarter, we have seen the daily average platform crush continue to trend lower.

When we go back and look at last year, on July 1st of 2010, average platform crush was less than 5 cents per gallon, yet we finished that quarter at 19 cents per gallon at an operating income before depreciation and amortization. Today margins have similar visibility to last year, yet we feel there are even better underlying demand fundamentals this year and I will discuss that later in the call. We believe the opportunity to execute our risk management strategy will happen for the third quarter, but it will take a little more time and patience before it materializes. As I said earlier, the best opportunity to lock margins away for 2011 has been in the fourth quarter. We have approximately half of that quarter locked away at margins in the low $0.20 per gallon range and we will keep going after that as we move through this quarter.

So we have, as we call it “the summer of our discontent”, yet feel optimistic we will have opportunities to capitalize on margins as they expand. We believe keeping operating and overhead costs down combined with the diversified income streams we are developing. We believe we are on track to generate at least $50 million dollars of total operating income annually from non-ethanol related products and services will smooth out the rough edges of the ethanol margin environment.

Now I would like to turn the call over to Jerry to review our financials in more detail and then I will cover industry topics and our current outlook for the Company.

Jerry Peters

Thank you, Todd.

I’d like to first, take a few minutes and run down our consolidated income statement for the first quarter of 2011 compared to 2010 as shown on Slide 5. The biggest drivers in the $386 million dollar increase in revenues year over year were increased production volumes and higher sales prices in ethanol production, as well as grains in our agribusiness segment. Ethanol production increased 39 percent in the first quarter when compared to a year ago. The additions of Lakota and Riga – which were acquired in the fourth quarter of last year - accounted for the majority of the increase in production gallons along with a small amount of production from Otter Tail as this acquisition was completed with about one week left in the first quarter.

As I said, the revenue increase was also driven by higher revenues from our agribusiness segment which increased $72 million dollars as a result of a 125% increase in volumes of grain sold in the first quarter of 2011 compared to the first quarter of 2010. The Tennessee grain operations, which were added in the second quarter of 2010, account for most of the increase between these periods. The Tennessee operations have performed very well and are largely responsible for the increase in operating income in agribusiness segment as well.

While our revenues increased substantially, gross profit remained flat between the periods, mainly because we experienced very favorable crush margins in the first quarter of 2010. As shown on slide 5, per gallon operating income before depreciation, in the first quarter of 2010 was $0.30 compared to $0.18 per gallon realized in the 2011 quarter.

Consolidated Selling, General and Administrative increased $4.6 million dollars quarter over quarter as a result of the increased size and scope of our business with 8 more operating locations in the first quarter of 2011 than in 2010.

These factors along with increased interest expense due to our acquisitions and the convertible note issuance late last year reduced our earnings before income taxes by $8 million in the first quarter of 2011 compared to the same period last year. As we have discussed previously our effective tax rate has increased to about 37% compared to 22% last year. At this point, we expect the rate to remain pretty close to the 37% level for the rest of 2011.

EBITDA, for the first quarter was $32 million which was off slightly from a year ago and on a trailing twelve month basis totaled approximately $128 million.

Our cash position remains strong as this is an important component supporting our risk management strategy. You may recall, we ended 2010 with $261 million of cash on the balance sheet. At the end of March we had $162 million in cash. The reduction was not unexpected since we had about $60 million going out during the first week of January as farmers utilized their normal process of deferring payments for their grain sales until the new tax year.

During the first quarter, we also utilized about $18 million of cash on our investments in corn oil extraction, the acquisition of the Otter Tail ethanol facility and normal capital expenditures. In addition, we have utilized our cash to lock margins away in our cash flow hedging programs and maintain a balanced risk position within our grain elevators. Deposits with commodity brokers are a critical component of managing our risk and are a central reason we closely guard our liquidity.

We also made $23 million in term debt repayments during the quarter. These repayments included $13 million in year-end cash sweeps related to our production facilities. The sweeps are based on generating cash flow at each of our ethanol plants above certain levels and so they are a further reflection of a solid 2010

Throughout the growth we have completed in the past year, we have managed to maintain a solid capital structure – particularly in our ethanol production business. Our total ethanol plant debt at March 31, 2011 was $494 million, which was an increase of $87 million over last year. But with our increased production capacity and our continued repayment, we have reduced our debt per gallon from $0.85 to $0.67 – in twelve months! We expect to continue this progress going forward as our margin management strategy is directly linked to our debt service requirements.

Now I would like to turn the call back over to Todd for his comments on the industry and our current outlook.

Todd Becker

Thanks Jerry

I’d like to spend a few minutes on macro factors within the industry as well as highlight recent developments in our BioProcess Algae joint venture.

Ethanol is the cheapest motor fuel in the world and as a result our industry’s fundamentals are solid. Ethanol is still trading at an average of 43 cents per gallon less than gasoline for the rest of 2011. U.S. ethanol exports have totaled about 117 million gallons for the first two months of the year and that puts the industry on pace to export approximately 700 million gallons in 2011. Combining export demand with the 12.6 billion gallon mandate for U.S. refiners and blenders and the economic incentive to blend, Ethanol is an important source of octane for subgrade CBOB and an oxygenate for reformulated gasoline markets. 2011 remains a solid opportunity for ethanol producers.

We believe the tightness in the corn market will not be a prolonged event as we have been out securing the physical corn for the upcoming quarters. We have made a concerted effort to secure physical corn through late summer so we have available product to convert into ethanol. Much of this corn is unpriced, physical basis only, purchased from both farmers and commercials. As margins expand during the third quarter, we believe this will give us the opportunity to sell ethanol to end-users and lock-in corn costs.

We believe for the 2011-2012 crop year, the crop will get planted, yields will recover, world production will increase, and we will return to a somewhat more normal market pattern. Early discussions with our farmer customers lead us to believe that with the profitability advantage of corn versus soybeans, there is a potential for even more expansion of corn acres versus what the USDA recently reported. In addition we still strongly believe that the USDA is underestimating ethanol yields in their supply and demand balance sheet. The industry is trending towards higher averages which could be in excess of 2.8 gallons per bushel of corn processed. We are using less corn as a company to make the same amount of ethanol in comparison to the previous crop years.

We have worked diligently over the last 30 months to create a diversified business that can weather the margin volatility and cyclical downturns presented from commodity processing.

It was our honor and privilege to host U.S. Secretary of Agriculture Tom Vilsack at the Grand Opening of BioProcess Algae’s Phase II a couple of weeks ago. The technology represents a true intersection between first-generation technologies and advanced technologies. We are showing the world that not only does carbon have value, but that carbon and other byproducts of an ethanol plant, like warm water and heat, can create a product that will give us food, feed, and energy. Our goal initially was to become the farmer of this product or “grow and harvest” algae. What we have discovered is that we have moved faster than the downstream markets have. So now with Phase II growing good amounts of algae at commercial scale, we have turned our attention to focus on the downstream uses of algae. In the feed market, BioProcess Algae is starting feed trials with Iowa State University next month. This will show us the value of a high-protein product in animal feed for the future. In the food market, algae will be used in antioxidants, pigments, Omega threes, and protein. We are starting to develop products for all of the sectors using the algae grown from these reactors.

In the energy market, algae give us one of the greatest opportunities to break our dependence on foreign oil. Not only can the lipids and oil extracted from algae be used for bio-diesel, our algae are being tested on the viability to go directly into a refinery to make a bio crude product. Finally, and although it is in its early days, we have made ethanol using our algae. Producing next-generation fuels, ethanol, energy and creating high-value animal feed and high-value food products. We think this is a very exciting venture we are involved in!

We continue to prove that the business platform we are building is one of the most efficient and effective in the industry. In addition, our focus on growing our non-ethanol operating income, which could be close to $50 million in 2011, shows the importance of being a diversified platform in the agricultural value chain. We often get lumped in as a pure play ethanol company, but as we continue our transformation, higher percentages of our operating income will come from other sources. We are focused on growing all aspects of our business and particularly interested in the agribusiness segment where we are actively looking for acquisitions.

As we grow this business, we are optimistic it may potentially lead to new vertical businesses and product offerings down the road. We will keep you informed of our progress during the year.

Finally … as we look downstream toward our distribution and marketing segment, we are close to finishing the conversion of our Nashville Blendstar terminal to begin selling blended gasoline in that market. We feel because of our location, we have an advantaged position to now service our customers not only with ethanol, but with gasoline blended with ethanol, and for the first time, become a small obligated party and begin to share in the downstream opportunities and margins.

We are rolling this out in Nashville and will make the determination if we want to expand this to our other terminals. In addition we have secured additional put through capacity of bio-diesel at several of our terminals as well. We are working on opportunities to expand our terminal capacity down the road. Remember these terminals are not only downstream for our ethanol capacity, they are potential outlets for our feed products as well and we are exploring that opportunity.

Needless to say it will be an interesting summer, but we believe our long-term thesis of growing our platform, diversifying our income, being a low-cost producer, always keeping intact our core competency of managing risk, and maintaining a strong financial position continues to be the right model for our shareholders and stakeholders.

Thank you for calling in today, now I would like to ask Mimi to start the Question and Answer session.

Operator

(Operator Instructions) Our first question comes from Mike Ritzenthaler of Piper Jaffray. Your line is open.

Mike Ritzenthaler – Piper Jaffray

Good morning guys.

Todd Becker

Hi.

Mike Ritzenthaler – Piper Jaffray

Trying to get a sense and thank you for your color on the 2011 market, but I think as investors increasingly look at 2012 I’d like to get a better picture for that year. Demand – the RFS mandate is about 13.2 billion gallons, export prospects still look healthy from what we’ve seen. So I just wanted to get your kind of your thoughts on supply levels exports in 2012, what it could mean for pricing in margins next year?

Todd Becker

Yeah, we’re optimistic for 2012 for sure I mean it was the increase in the mandate. If we see exports remain healthy which we think they will be based on what we’re seeing out of South America right now in terms of just demand for U.S. ethanol and in general hopefully what is an overall tempering of the core market if we get the crop plant and to get yield that hopefully we’re looking forward to. I think when you put all that together we’re already starting to see signs of that in the fourth quarter of 2011 where we have opportunities to lock margins away closer to historical kind of EBITDA per gallon that we’ve been dealing for the last couple of years if not greater.

And then when we look at 2012, ethanol is still 60 under gasoline for all of 2012, so when you look at it and you look at the positive economics for the blender we also believe that in 2012 we could see early adopters of E15 show up and it’ll be Midwest farm states typically that will – are always the early adopters. Now we think that we’ll get through the EPAs, health effects, we’ll get through the labeling that we’ll be done shortly and then hopefully we get some early adopter states that start to look at E15 through the blender pump or flex pump program that the USDA is offering. When you look at all that, we think we have a great base demand against a production that should not – should not exceed that demand if you add it all together, and I think we’ll get ourselves back in line.

We came off of a quarter where our inventories were built again in the first quarter much like last year. And as the quarter got very soft and now we’re dealing with volatility in the corn market, but we think we’ll have opportunities in third quarter of this year but we are looking forward to getting out of the volatility – hopefully the volatility of this year’s corn market and getting into something a little bit more steady where we can lock margins away.

Mike Ritzenthaler – Piper Jaffray

Okay thanks. That’s really helpful. My other question is on the algae project, I guess in a sense for the commercialization strategy I know you’ve done some feed trials and things like that and we’ve heard from other companies there are kind of up in coming in the Clean Tech space but applications in food and nutraceuticals can be pretty lucrative. Is kind of the thought that you would go to market with a partner and I guess I have a follow-up to that on how much CO2 would have to be removed from a plant to be able to claim that the ethanol from the corn would be in advanced biofuel is that something that’s possible?

Todd Becker

Yeah we talk a little bit about what we’ve announced at the grand opening of the commercial reactors. We are going to break ground, if we haven’t done it already in Shenandoah, on a 5-acre footprint where we’re going to go and build the vertical and horizontal reactors that the company. This is obviously a partnership of four companies. We’re going to then be able to do that and what we’ve been able to also do with our algae that when you harvest algae is basically 99.9% water and using because we’re partnered with water filtration partners that have brought the technology to us, they have started to dewater the algae to get it to a more of like you could think it is a toothpaste form and from that toothpaste form we’ve been able that to distribute that algae to feed, food and fuel uses and we’re testing all that right now.

Our goal is never to make anything downstream, but the problem is that the downstream hasn’t developed fast enough so and it’s not it’s really not that difficult to develop products out of algae but we do have interest right now from fuel use, we have interests from the feed use, we have interest from pigment, interest – guys that are interested in pigment and the antioxidant market and then as well as some other downstream uses. So we are getting a lot of calls from people that are interested in the finished algae so they can utilize that to make something out of it and those are coming from all of three sources.

So I think we’re really excited about it, we got here faster than we thought. We’re going break ground on this footprint next summer and because we move so quickly through commercialization we’re enabled to move into it this summer and if anybody was that our opening in Shenandoah when the U.S. Agriculture Secretary – Tom Vilsack, he was absolutely impressed with what we’ve done there and made the comment that he hadn’t seen anything else like it out there.

We think we’ve made great progress on the production. When you look at the CO2 footprint, we’re starting to – we are taking industrial CO2 out of our plant right now to make the algae it is linked directly to our stack. We’ll see how and as we grew out the acres we’ll take more and more out of it. Our goal that is to partly Shenandoah just to give you an example produces 150,000 tons of carbon approximately. And then if we could capture all that carbon, we think we’re able to make 50,000 tons of biomass and 7 million to 10 million gallons of just liquid fuel out of that. And that’s – and then hopefully the EPA will reconsider corn as an advanced fuel because of our negative carbon footprint which we think will be unlike anybody else’s so again we have some work to do around that.

But we are very excited about the progress we’ve made around this technology that something that’s going to move our needle today. We don’t have any earnings related to it but based on the early discussions we’ve had with people that know the space and we’ve been flying below the radar and I think the recent opening kind of let people under the – under the vail and can see what we’ve been doing in Shenandoah, Iowa that’s really exciting.

Mike Ritzenthaler – Piper Jaffray

Excellent. Thanks very much.

Todd Becker

Thank you.

Operator

Thank you. Our next question comes from Laurence Alexander of Jefferies. Your line is open.

Laurence Alexander – Jefferies

Good morning.

Todd Becker

Hi Laurence.

Laurence Alexander – Jefferies

I guess three quick questions. One is as you look across your facilities now, how much scope do you see for further debottlenecking over the next 18 to 24 months?

Todd Becker

We’re continuing – I think what you’ve seen over the last two years taking up our production at the levels we’re able to do. I don’t think you’ll be able to see that over the next 18 months. We’ll start to see small increments but it will be in very small increments we’re focusing on yield as well. We think to a 2.8 yield can be improved by better uses of the enzymes, chemicals and process and so that’s where we’re focusing, it’s getting more ethanol out of the corn kernel instead of more ethanol out of the plant. So I think for the most part, a lot of low hanging through has basically been harvested and I think from here we’re just going to have to go after small wins.

Laurence Alexander – Jefferies

And secondly on the algae, you made a comment about making ethanol directly from the algae. Can you elaborate on that?

Todd Becker

Yeah. We’ve been able to – in our labs used very basic enzyme and chemical application like we do out of ethanol and taken the algae in that toothpaste form and have made ethanol out of it. Now we’re not talking about commercial levels but algae has starch and there is carbohydrates and you could grow varieties for that.

We wanted to see if we could get it done in a serial laboratory environment and we were able to accomplish that whether that is game changing or not it is something that we appreciate to being seeing which again we’re not that is probably the lowest value product in terms of just product value of what you could make out of algae which would be ethanol, but again it’s another use of the product.

We think we’ve been able to do that. I mean really the bigger use of it that you’re going to growing before you build out 10 of these commercial scale facilities taking all the carbon, there’ll be plenty of opportunities in feed and especially in the nutraceuticals and food applications long before you’ll need to take it in fuel but you have to be heading in that direction.

I think more importantly is that we have worked with major universities in bio-oil extraction and we’ve also announced that or has said that our algae product is now had a refiner’s laboratory and they’ve seen if they could take that bio-oil and use it in front of the crude refineries as well. So I think we’re doing all of the work that we need to do that we didn’t expect we would have to do because we can grow all the Algae I it’s just a function of, if we’re just doing it for the value of carbon and you have nothing to do with your algae that’s not the right reason to do it. But if you could find, you can take your carbon and create high value products out of it that there is a reason to do it and expand that, and we think we have we’re on the right track right now.

Laurence Alexander – Jefferies

And then just lastly, you’ve taken fairly a low key or capitalized approach to doing this, what’s your – as you looked the next stage what kind of financial hurdles are you setting yourself to before you start seriously allocating capital to this?

Todd Becker

Well, I mean, the farm that we’re going to build at Shenandoah, the five acre commercial facility which we think will be one of the most unique in the world, that is going to be funded still through the partners and that will be still – because of the way we’ve been able to scale this technology, it will be not too capital intense to get to that five acres.

Once we start to build out kind of a full commercial scale facility, the expectation would be that at that point we will start to look at alternative sources of capital so that the partners continuing to fund that growth. Depending on now what the value is or the product, if you have finished product contracts and offtake agreements, you might be able to fund some of that through project finance if you have is offtake and you’ve shown your finished products or else obviously there’s a lots of other programs as brands, there is the government loan guarantees and then there is also, which we have already focused on at all. We’re trying to – if we’ve attempted, but we did receive some small grants with the Iowa Power Fund, but we haven’t gone to any government guarantees or government grants or U.S. government grants.

I think we will have opportunities to raise capital for this business from outside investors, but we haven’t gone down that road yet, what we want to do is build this farm out this summer, show the capabilities of it and then from that that will make the determination.

But it will be capital intensive as we ramp up from this point, it will just be – we just want to get this step which is funded from the partners and then beyond that we will have to look at – we may have to look at external capital at that point.

Laurence Alexander – Jefferies

Thank you.

Todd Becker

Okay, thank you.

Operator

Thank you. (Operator Instructions) Our next question comes from Farha Aslam of Stephens Inc. Your line is open.

Eric Gottlieb – Stephens Inc

Yes, hi. And this is Eric Gottlieb for Farha. I had – hi, how are you doing? I had a few questions. I want to talk a little bit about weather, I’m wondering if there is any impact from the recent storm in the Midwest and also from the flooding that’s been going on in the south and the corn crop getting into the ground a little slowly?

Todd Becker

Well, I mean obviously you saw for last week the corn report, they didn’t do much work last week. The window is starting to opening up a little bit here. I think what – while we were behind last week and we will probably remain there for a little while, the windows are starting to open up. I think the Midwest will get planted. If you remain – take last year, we might saw early, that a lot of farmers do believe in going to their fields in May, but it got cold and wet in May and that might be some of the reason that maybe the crop didn’t quite yield as well last year. And I think as the farmers we talk to, at least they’ll believe, they’ll get their crop planted, they’re starting to get back into the field, we’re starting to see a pickup in our fertilizer business up north again and I think that’ll happen.

The south is still running a little bit behind especially in Tennessee, but then that translates to more bean acres is yet to be seen, but I think when you look at the – just the positive advantage of corn over soybeans, then I think that they’ll plant corn as long as they can and we’ve had some farmers in Southwest Iowa tell us that they will plant corn up until June 10th and that will in fact yield obviously, but I think we’ll get the acres. I think we will get the government projected acres and the question really is, will we get more than that based on the advantage of corn over soybeans.

Eric Gottlieb – Stephens Inc

Interesting. Okay. And I’m wondering what’s the price of corn shooting up so high if you've seen any plants going idle or shutting down completely and if there is any M&A opportunities there?

Todd Becker

Yeah, we’ve seen some comments from some plants that they’re slowing down. We’ve seen – we haven’t seen anything that’s really shutting down yet. But I think plants are starting to slow down a little bit here at the end of the first quarter and then into the second quarter, we are still running full throttle at all of our plants, I can tell you that, with certainty today, so – and we have no intention at all to slow those plants down as if right now and so from last stand point we haven’t seen anything shutdown.

In terms of M&A opportunities margin volatility often brings some M&A opportunities especially with the strong balance sheet and the ability to integrate assets very quickly and I think that we have started to see some of those opportunities start to at least be talked about for nothing today that is terribly interesting for us, but we think there will be some opportunities over the next six months as margin volatility will probably increase with the volatility of the corn market. So we’re just – we’re standing by, we’re still actively looking at ethanol plants and perhaps were also selectively looking upstream and downstream as well.

Eric Gottlieb – Stephens Inc

Okay. And some housekeeping items. The corn oil contribution, given the update in oil reprising, where do you see that contributing, I know you originally said $18 million – $16 million to $18 million, where is that currently?

Todd Becker

Well basically what we said is somewhere approximately around $30 million of operating income mainly because it is all our plants are running. I mean I think people are very confused about corn oil pricing in the market and that’s actually the question. When you look at kind of crude corn oil prices that some people have said that are higher than soy oil prices those are food grade corn oil and that’s feed grade corn oil, so you can’t compare the two, we are not selling this for food grade. This is a discount to soy oil and then oftentimes we’ll trade more towards fats and tallows.

So I think there is a big miss conception out there that this is a food grade corn oil. So what we’ve seen is with soy – it trades at a 10% to 20% discount of soy oil for volumes and right around that, and I think the floor is the fats and tallows price. And so we’ve seen pretty good demand, we haven’t had any trouble selling it. The biodiesel guys are making money right now, especially with corn oil. The feeders are very interested in it as a replacement in feed ration or even see more and more interest in it.

We see major feeders come to us and start to realize that there is an additional feed product out there that competes with fats and tallows and soy oil and I think that’s very important. But in general, it’s performing better than we thought, when we came in, we thought it would be about an $0.18 gallon net impact and now it’s, I mean $0.18 per pound, now it’s greater than that. What we report, there is a gross price and we will take off the DDG loss of that because we keep our plans whole.

So for example if you sell for $0.45 a pound and DDG is trading for $160 a ton which is equivalent of $0.08 a pound, that would be $0.37 a pound before operating costs so that’s where you get more in to that low $0.30 per pound. And I think often people would think as a gross value of corn oil is the value and it’s really – it’s the net value of corn oil is what we report. But we are very happy with the performance, we will pay off very quickly and we are locking away a lot of 2011, we are even starting to focus on 2012 as the soy oil curve is very strong into ‘12 and that we are focusing on locking away portion of 2012 as well.

Eric Gottlieb – Stephens Inc

Okay. Very good, thanks for clearing that out. One last thing on the 700 million gallon exported for ethanol, do you see any seasonality to that, and then I will pass it on?

Todd Becker

Steve, are you seeing any seasonality to that?

Steve Bleyl

Yeah, it correlates a little bit with the driving season as it kicks in more wide in southern industry, obviously. So you will see more inventory in January as the driving season is not as strong.

Operator

Okay. Our next question comes from Brent Rystrom of Feltl & Company. Your line is open.

Brent Rystrom – Feltl & Company

Yeah. Can you hear me, Todd?

Todd Becker

Yeah. Yeah.

Brent Rystrom – Feltl & Company

Hi. I got just a couple of quick questions for you. The fertilizer side, I’m curious if the leader planting is going to push it more toward the urea and is that more profitable for you guys to solve than in hydrous or is it that a wash, how would you do that?

Todd Becker

I mean, we haven’t seen any producers yet talked to us about switching over. I mean, the hydrous – well the nitrogen is still what they’re going to put on and they have – we haven’t seen a lot – a big switch yet. Mostly presold anyway, so if they want to switch they will have to give us a call.

Brent Rystrom – Feltl & Company

All right.

Brent Rystrom – Feltl & Company

All right. And from the perspective of the flooding that was asked earlier, for my understand, on your side of the river not the one these are broke or anything like it’s the left side of the river where the issues are?

Todd Becker

Yeah, we haven’t – in terms of area, in northwest Iowa we haven’t seen obviously much issue there. They will get the crop planted. And then down in Tennessee we haven’t seen any issues down there as well.

Brent Rystrom – Feltl & Company

That’s what I am refereeing to.

Todd Becker

– We are 70 miles in from the river to our closest location. So you’re not going to – well, we should not see any very big impact at all. Even last year during the Tennessee flood, right when we bought the elevators, we had no flooding damage at all in there, no flooding at all in there at any of our elevators. So it seems like as a high enough ground.

Brent Rystrom – Feltl & Company

Okay. And I was – down there last week was up and down the Delta looking at crops and crops definitely in – for that particular facility look like they’re going to be unless you worry about west side and Arkansas, but everywhere else it looks like it’s better crown crops sort of not this year than it did last year.

Todd Becker

Yeah. We think – we think acres will be up that have 10% to 20% across the board and corn down there our elevators.

Brent Rystrom – Feltl & Company

Okay. So that’s going to be positive as far as supply. When you see a recovery in corn lobs and supplier you’re talking – do you think that’s going to actually happen this year or you think it’s a more likely in next year?

Todd Becker

We took from the beginning of the reporting period last year, we took about 10 bushels an acre off. Bring you back towards trend from the 152-ish area where we’re this year, we can get the 92 million acres, we start to have a recovering corn carryout, at least a little bit – something a little bit better.

I think we all start to look at that yields, I think also something that’s missed is where is the impact of sorghum produced ethanol because the USDA long-stand all ethanol into corn and they don’t break it out at all and it’s sorghum, yet we think 50 million to 80 million bushels of sorghum is used to produce ethanol as well. We think – we just some of this seems to get started out as ethanol inventory become a much bigger piece in the USDA balance sheet. Number one, in the industry, we have to do a better job reporting the yields to them in some way shape of form. Number two, they have to do some better job around understanding what’s driving this industry, especially around corn and especially around sorghum to make sure those match up as well. We haven’t had any trouble so far even in the early August procuring physical corn from hedgers and from farmers. In fact, we’re done through July and we’re into August now and we’ll buy August as we see opportunities as the right basis levels, but obviously we want to make sure that we don’t carry corn down the inverse.

But for the standpoint of that quarter starting ethanol, that could be the quarter that – it’s a standoff between the blender and ethanol producer and we’re not willing to sell ethanol here and the blender now want to buy it here and we’re going to have a stand-off for a little while until we get to a point where it’s for both of us. But from the standpoint blending economics, they’re excellent for the blender in third quarter and they need to get realistic on ethanol price.

Brent Rystrom – Feltl & Company

And then I have two quick questions Todd beyond that. You were asked earlier about turning the algae into a crude equivalent. Did you – you gave an answer, do you happen to say who you might be looking at partnering with to do that?

Todd Becker

No, we haven’t, we haven’t given them out except to say that our algae is at a – in a refiner’s laboratory and they are looking at the extraction of that to use on a front end of a refinery. But – I mean, it’s very early days but it is happening. So, and we’ll see what the results are and we’ll see what they get out of it.

But I think even more than that they have worked with a major university and they have – if anybody is that are opening, they saw the bio oil that was extracted from a major university research center and we saw very positive results there. And then we actually, interestingly enough we blended that with corn oil just to see what that look like in a biodiesel feedstock. And so, and I think there is a lot uses out of it. I just think it’s very early days. But I think it’s the chicken and the egg theory. Could you produce algae to make something out of it and I think we could do that. And now we’re here and now we’ve got to figure out what to do with the product. It’s not just about sequestering carbon – but that is a nice piece of it as well.

Brent Rystrom – Feltl & Company

Final question then is – the USDA changed of wording ethanol to ethanol and like what else they call it, but there seems to be kind of change in little bit PR spend negative historically and you guys using 5 billion bushels of corn and now they can basically reposition this technically ethanol has a by-product of 3.5 billion bushels because of DDGs. Are you seeing some benefits of that change?

Todd Becker

I think what people are now understanding is that, when you look at food now, oftentimes oil is finally getting the blame and energy costs much more now I think than ethanol. The old food versus fuel is still comes up, but I think we try to again prove that data is really incorrect. I think what’s important is that when you take corn kernel and a third of it goes back in animal feed and you look over last 10 years when you look at animal feed numbers and you look at ethanol numbers, you see that ethanol use is up, exports are steady, animal use is down and DDG production is up and if you look at the growth in U.S. corn crop of 3.5 billion bushels that basically the growth in the use of corn in ethanol.

The feed use is down from a standpoint of actual corn kernel because we are feeding more DDGs. It’s a very complicated story to get to change public perception. But I think it is the first step people understanding that, a lot of what we do is we give back a lot of animal feed to – which by the way and it is a good question, it’s trading at 70% to 80% the price of corn, so as an animal feeder you’re getting the great benefit of the best part of corn kernel at a discount to corn as lowering your animal feed costs which by the way has a direct impact in lowering the cost of food but again complicated story, but we are making progress.

Brent Rystrom – Feltl & Company

Thanks, guys.

Todd Becker

Okay. Thank you.

Operator

Thank you. Our next question comes from Ian Horowitz of Rafferty Capital Management. Your line is open.

Ian Horowitz – Rafferty Capital Management

Hi guys.

Todd Becker

Hi Ian.

Ian Horowitz – Rafferty Capital Management

Sort of missed basically everything with this technical difficulties. So if I’m repeating a question please forgive me. But did you guys talk, it sounded like, Brett was kind of asking a little bit about blender economics, did you talk about kind of forward curve in terms of the spread and why you think it is where it’s at and how to narrow it up?

Todd Becker

Yeah. We talked a little bit about that, but I mean in terms of rest of the year where a significant discount of 2012 we’re sitting at a $0.60 a gallon this kind of gasoline and then those economics were still – we still see profit opportunities along the curve I think what we are getting out of the winter doldrums, summer driving season is upon us, we built inventories up towards the high 20 days and what we watch often is the days of inventory.

Which was built over the winter into the high 20’s up to 25 and 28 days and we’re moving back down into low 20’s and once we start to get around that 20, 19 to 20 days we start to see margins improve. We have great demand right now for ethanol because of blender economics and I think that will continue and I think we’re just dealing with the volatility of corn. What we see is – ethanol seems to be very sticky while corn is jumping around $0.20 and $0.30 and $0.40 either direction any given time and I think what we’ll see is as we move through and get into summer driving season hopefully we get to close that gap and even looking into the fourth quarter where economics are very good, we’ll close that gap as well.

So I think we came out of the winter pretty soft, I think we’ll start to see better demand in we’ll just have to hopefully we won’t see a slowdown in gasoline use, which we’ve already started to see a little bit of that, but we haven’t really seen too much of that impact ethanol today.

Ian Horowitz – Rafferty Capital Management

Do you think that the spread is as wide as it is and as sticky as it is because of the kind of understanding that the product is very quickly completely on the table for being removed at this point and so they’re going to want to extract that economic value from you now rather than from a combined government and the blend margin.

Todd Becker

No, we are not there with that the market is that efficient. I mean I think we are here because as an industry we came out of the winter with a bit of an oversupply and a little bit too much inventory, we had some new plants come on or coming into a stronger demand season and if you look at the last year we kind of did the same thing, we closed that gap pretty fast in the summer and towards the fourth quarter. So now I don’t think that has a lot to do with it. I think the economics are good either way. If you look at 2012 though we are sitting at 60 under gasoline and there’s talk that the credits could go away in 2012 and I think the economics will still be there to produce ethanol as long as we produce a good corn crop.

Ian Horowitz – Rafferty Capital Management

Conversion rate, production was again up again this quarter over last some. Again – I asked I think this last time, but just an indication of what do you think the increase is due to the quality of the corn crop versus your efficiencies and where do you think – where you think that this conversion rate can get to over the near term, and again I apologize if these were questions that were already answered?

Todd Becker

Okay. Look the corn crop test weights were more this year than last and was the crop was drier and that always helps conversion rates across the industry. But I think in general the industry is doing better even without that and I’d say 20% to 30% is due to the corn crop maybe a little bit higher and the rest is due to just operating plants better, understanding enzyme and chemical usage and understanding where a lot of that out of the residual sugars or the vapors are that you can continue to capture Jeff do you comment on that?

Jeffery Briggs

No. I think that’s right Todd. I mean we have done some projects specifically here towards yield improvements and conversion rates. Those are paying benefits. But as Todd said we are also seeing some benefits in the corn crop and as we look further out into the year those should hold based on the corn crop quality at this point.

Ian Horowitz – Rafferty Capital Management

But I guess another way to ask is, do you guys think you can get three gallons here over the next year – I mean if you map out your rate of change you could be there by the end of the year?

Todd Becker

No

Ian Horowitz – Rafferty Capital Management

Is that something reasonable to assume?

Todd Becker

I don’t think that’s reasonable to assume. I think those are – that would be a monstrous step to go to three bushels, three gallons per bushel. But I think you can get – continue to look over the next several years and continue to get more ethanol out of that corn kernel through better production processes and just continuing to go after yield.

Well, there are others in the industry that are pushing to 2.9 and there’s others still in the 2.7 range. So I think as an industry we are all moving up. It depends on the plant, sometimes it spends on the corn, sometime it spends on the process, sometimes it depends on the operator, sometimes it depends on the enzyme or the way you use the enzyme. So I mean lots of different things go into yield, but the things that we are going to go to three without some breakthrough, some technological breakthrough or cracking some code, I don’t think the industry goes to three anytime soon.

Ian Horowitz – Rafferty Capital Management

Last question, the agri business, first of all Jerry was there an adjustment made in the first quarter 2010 I had in my model 7,800 bushels of grain and 126 tons of fertilizer for 1Q ‘10, it seems like there was a little bit of an adjustment there. And then the second part of that question, looking at this quarter a huge year-over-year change and second quarter is a very – second and fourth are very big quarters for agri business. Can I reasonably map out some sort of rate of change back on 2010?

Jerry Peters

Yes, there was a slight adjustment to our fertilizer tonnage in 2010 but the second part of your question, I guess in terms of performance, the second quarter is the big quarter or is a bigger quarter for the segment, but we are really smoothing it out quite a bit with the addition of Tennessee assets. They have performed very well in terms of just realizing the carry in that first quarter and it really helped us out on our seasonality of our income there.

Todd Becker

But in generally both in general, we came out of harvest basically full with a lot of our elevators and had more capability in the balance sheet to carry more corn. And as we grown the segment we’ve had more capability now that we took the revolvers and the bulge all the way over $100 million. Last year we didn’t have that ability to do that and so between carrying more corn and focusing on the ability to carrying more corn from a financing perspective. We’re starting to hopefully smooth out earnings throughout the year and have a little bit less volatility, but the fourth quarter will really be the biggest quarter as we get into harvest and see those first handle bushels and then from there it will hopefully smooth for the rest of the year out.

Ian Horowitz – Rafferty Capital Management

You did – with the 57 million bushels of grain and thought 60,000 tons of fertilizer in 2010, I know this is in guidance, what can we expect out of this business for 2011 just in terms of volume, is it just too hard to even to figure out.

Todd Becker

Well, we will have to see what the crop is you have to remember that this year you have to – if you’re a grain handler, you better be empty late July or early August, you’re going to carry much of grain from whole company crop of big inverse. So, yet I think we’ll handle more in 2011 than we have handled 2010 both from fertilizer and a grain perspective mainly because we’re adding more space as well, by the time we get to harvest, we’ll have the additional space in Tennessee that we’re building. And as I think we’ll handle there more in general, we’re really focused on originating more in our Iowa assets, where I think we lagged over the last couple of years. We have made a big effort to make show it on, we don’t lag for this harvest as well. So we think we have some opportunity to grow our volumes.

Ian Horowitz – Rafferty Capital Management

Good.

Todd Becker

Okay, thanks.

Operator

Thank you. (Operator Instructions) Our next question comes from (inaudible). Your line is open.

Charlie Antrim

Hey good morning guys, all right you factored in now. I just had – you could get comments on the DDG market, you touched on a few things that are positive from a real industry standpoint in terms of the feed ration but given some of the actions in China you integrated more DDGs within the United States and certainly if that not helped out soybean crush margins and any sign that you may see an uptick in exports for DDGs moving forward, how would you kind of characterize that market currently?

Todd Becker

It’s interesting since we stopped the China program as a percentage of corn DDGs actually increased. So I thought that was interesting but we’re also pretty discount from a protein substitute in the feed ration. I think as we got to the 80% price of corn and corn rally versus soy, we started to be a premium as a protein substitute and we saw that that percentage of corn break back a little bit, overall. I mean we have great demand, we’ve seen all of the animal sectors increased the ration of DDGs.

We have to be a little careful again soy right now but in general I think the domestic demand is very good. We’re starting to see more demand around the world as well at least a lot of interest in it. And we’ll have to see what the Chinese do, but I think a lot of people thought would the Chinese gone it would backup DDGs and we have no place to go and actually because corn rally into the mid 7s and DDGs at 20% less than the value of corn becomes a very big positive feed economic if you’re using them and we’ve been able to suck up the extra supply that was going to China pretty much into the domestic market U.S.

Charlie Antrim

Okay. But if you – but if we have a decent harvest and you see a new crop corn somewhat decline in value and that – the incentive from an economic standpoint declines, I mean could we potentially see that backup as the people are expecting if you have no movement out of the Chinese or is that we would expect? Yeah, sorry.

Todd Becker

I’m out there but even let’s just take a look at, so now we’re at $7.50 corn, let’s say, all the analysts are talking at least $5 corn to the rest of the year, it’s now higher than that even USDA is there. And 20% less than added $1 of bushel less in your feed ration, so I just don’t think that you’ll see – I think it’s going to be wisely used I think it’ll be expanded and I don’t think you’ll see any backup, now if you’re at 100% price of corn looking to be looking for homes and corn was $5 maybe that but we continue to remain a discount to corn and I think it’ll be widely used and widely accepted. So I don’t think – I don’t anticipate any backup on DDGs throughout the year. And it hasn’t been and everybody has calling for that for several years and it still hasn’t backed up yet.

Charlie Antrim

So the more of a negative impact for soybean beyond the soybean crushers then keeping those margins pretty anemic?

Todd Becker

It really just hasn’t the corn and soy spread at that point because like I said it is – it’s not just used in the animal, it is a substitute for strong meal as well. So when it’s over strong meal it’s positive and when it’s under strong meal then we are substitute for that.

Charlie Antrim

Okay. That’s it. Thanks very much.

Todd Becker

Thank you.

Operator

Thank you. Our next question comes from Matt Farwell Junior of Imperial Capital. Your line is open.

Matthew Farwell – Imperial Capital

Hi, good morning.

Todd Becker

Hi.

Matthew Farwell – Imperial Capital

You mentioned that – you mentioned that you locked in your physical corn needs. I believe for the third quarter is that take or pay and how will the product be priced?

Todd Becker

No. What we said is we locked in our physical procurement through July and a little bit in the August and but that is just basis on priced corn. So it just fits in our model against the crush, we use basis corn and we’ll – we can – now we know we have the corn, so we can sell the ethanol. I think the key in the third quarter is to make sure that you procure the physical corn and then you sell ethanol against it.

We felt the basis levels we procured were historical and were opportunistic from our standpoint that we could have – not have the corn if somebody wants to buy ethanol in the third quarter. But no, it’s not take-or-pay, it’s just physical un-priced corn, but it does have a basis level established. So now we can only convert that to a flat price and then sell ethanol against it.

Matthew Farwell – Imperial Capital

Okay. And just looking at some of the ethanol supply and demand data, it seems like supply has been fluctuating between 13 billion and 14 billion gallons per year. The demand has picked up recently. And I’m just – I’m trying to figure out is the – is it clear to you that ethanol is the marginal source of demand now with corn approaching $8 or are there other sources of corn demand that could be destroyed with the feedstock at these levels?

Todd Becker

Well, I think we haven’t seen any demand destruction in the animal sector yet. I think we’ll have to watch our exports over the summer. And oftentimes in – if we get good new crops and new crops around the world as well as some other crops coming on over the summer, we may see possible shift out of the exports, which I think is a logical place to look before you look at domestic ethanol demand.

But I also think – again as I mentioned I also think the yield is too low at the USDA and I think the first place you’re going to find more corn is by raising the yield in the Supply & Demand and from there you’ll then figure out where you’re really at, whether you really need demand destruction or not but I think from the standpoint is ethanol the easiest bushel to go after.

Yes, ethanol is the easiest bushel to go after but we’re already seeing it in this quarter now we’re seeing plants slow down 10%. And you get that widespread and every 10 million bushels is meaningful to this balance sheet and if you get some of the industry or half the industry to slow down 10% for four or five or six months you’ll temper the impact to the balance sheet a little bit. So I think exports and ethanol will be the place that people look for I think the animal sector will be the hard one to destroy.

Matthew Farwell – Imperial Capital

So would you ever consider inventorying ethanol in the third quarter, so will your capacity have to do so?

Todd Becker

Well, we inventory ethanol, the market – if the market structure to carry ethanol from one month to the next we have a basis where we’re at today and we have a little bit of carry but we will inventory ethanol and sell it the next month. And then but as at inventorying ethanol at a destination terminal if the market structure correctly we would inventory ethanol but if the – we’re not going to inventory it, though if we can hedge it correctly and entering the carry just like corn and we were able to do that some months between given that on all plants we’ll fill all of our inventory up so we can carry it till next month because it carries – but it carries at least will pay for that and it’ll expand your margin opportunity.

And so I think often times, people sometimes miss that as that when you look at the ethanol carry it might be $0.03 to $0.04 per month. We’ll fill all of our inventory storage up in our plants and carry that we send half the margins in the next month. So while we will look at it at our inventory I don’t see as putting a bunch into terminal storage unless the market really pays you because you’re going to pay storage there as well. It’s not just interest costs.

Matthew Farwell – Imperial Capital

Okay. And then last question is you mentioned expansion of the Agribusiness assets, I assume that the cost of expansion is around, is it around $2 a bushel and also could you, do you have any idea what market values for grain stores are in this space?

Todd Becker

Well, I mean in terms of building a new elevator, brand new green field grain elevator is certainly more than $2 dollars per bushel. And when we are looking at our projects, what we do is, for example, we’ll build an upgrade and we’ll build it flat, we’ll try to keep it more towards much below the $2 a bushel expansion cost, but $2 a bushel is probably for full upright expansion of the grain elevator, is probably in the range and if you do a flat storage, it will go down from there and corn stores very well in flat storage for a long time.

So in terms of acquisition opportunities – a good business with exit location has business for their trading and necessarily on cost of space but more on both the income stream and security revenue is and what the opportunity is to earn a return from an EBITDA perspective. So I think if you want to buy a business and not just a grain elevator, it’s a little bit different, but I think so grain elevators just in terms of space, I think they ran up a little bit here. But as there are still some opportunities, in certain markets, to still look to acquire assets.

Matthew Farwell – Imperial Capital

Okay, well, thank you very much.

Todd Becker

Okay, thanks Matt. Thanks for calling.

Operator

Thank you. Our final question comes from Farha Aslam with Stephens Inc. Your line is open.

Farha Aslam – Stephens Inc

Hi, good morning.

Todd Becker

Hi Farha, good morning.

Farha Aslam – Stephens Inc

Just a few questions. In terms of the M&A opportunity, could you just comment and if you’ve already covered this, I am sorry, I missed part of the call, what M&A opportunities you’re seeing in the ethanol space? With the pullback in production, are you seeing more plants growing up for sale right now and what price they are being traded at right now?

Todd Becker

We’re not seeing all of a sudden a huge inventory of opportunities just yet, I mean, we think margin volatility, people are starting to realize that it will be an interesting summer that we’ll have to deal with. Remember, they came out of a strong 2010, first quarter 2011 we’re not sure how the industry performed, but in general they were probably able to cover costs and now they have to deal with Q2 and Q3.

And so it’s a little early to think that we’re going to have a bunch of opportunities, but they are starting to – we are starting to see some people start to look, but nothing that we’ve seen from our standpoint yet that we could say that we were working very hard on. So at this point we haven’t seen a lot, but we made – they made change over the summer as we get more into or could potentially be a volatile summer.

Farha Aslam – Stephens Inc

Thanks. And then my final question is on sugar and ethanol export opportunities, the price of sugar has come down a bit and there’s increased ethanol production in Brazil, can you just comment on export opportunities for U.S. ethanol?

Todd Becker

We’re still very bullish on export opportunities. We still think in a relative cost perspective of U.S. ethanol with price right now, it’s still very competitive even with $0.22 and $0.24 sugar. We are not seeing any slowdown in interest. The Brazilian market is still very active, they still have to supply themselves before they can spy anybody else and I think the U.S. will continue to be part of that equation for them. So in general while sugar has broken from the highs, the sugar profitability is still very good to not make ethanol out of sugar and we’re still seeing the opportunity to sell all of our markets that we haven’t saw, Steve, you want to comment a little bit, just to follow up?

Steve Bleyl

You’re still seeing a lot of Gulf Coast interest, it’s looking that way Farha – it’s through year-end right now that people have started to look to think. So the interest is still there, the evaluation is still favorable as exported.

Todd Becker

I think another important point Farha is that Brazil is exporting or importing ethanol, they are importing 125,000 barrels a day of crude because they are not producing enough there either. So something is happening down there fundamentally that they are driving more / bigger demand and they need to import more crude and the ethanol industry isn’t keeping up with that down there. So in general, we are very still very optimistic on world demand for U.S. ethanol.

Farha Aslam – Stephens Inc

All right. Thank you very much.

Todd Becker

Okay. Thank you.

Operator

Thank you. I’m showing no further questions in the queue. I’ll hand the call back over to Mr. Todd Becker.

Todd Becker

Okay. Thanks everybody for coming on today. Sorry about the technical glitch we experienced, I’m glad that we’re still all held on. We appreciate all the questions and everybody on the call, we’re still very optimistic, we’re still very excited about our business that we run. We think we are doing great things at Green Plains and we believe that future is very, very bright for this company and we’ll continue to work hard on behalf of our shareholders and stakeholders, so we appreciate everybody coming on today. Thank you very much. We’ll talk you soon.

Operator

Thank you. Ladies and gentlemen, this concludes the conference for today. You may all disconnect and have a wonderful day.

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