VeraSun Energy Corporation Q4 2007 Earnings Call Transcript

VeraSun Energy Corporation (VSE)

Q4 2007 Earnings Call

March 12, 2008 10:00 am ET

Executives

Don Endres – Chairman, CEO

Danny Herron – President, CFO

Analysts

Jinming Liu – Ardour Capital Investments

Kelly Dougherty – Calyon Securities

Cornell Burnett for David Driscoll – Citigroup

Eitan Bernstein – FBR

Michael Judd – Greenwich Consultants

Tom Nowak – Merrill Lynch

Bryan Milbank – Piper Jaffray

Ian Horowitz – Soleil Securities Corp.

Patrick Forkin – Tejas Securities Group, Inc.

Chris Shaw – UBS

Mark Miller – William Blair & Company

[Munsi Sergali – Lehman Brothers]

[Melinda Newman – Post Advisory Group]

[Eric Calamaries – Wachovia Capital Market]

[Luke Meltic – TPG Credit]

Presentation

Operator

Good day ladies and gentlemen and welcome to the fourth quarter 2007 VeraSun Energy Corporation earnings conference call. My name is Michelle and I will be your coordinator or today. (Operator Instructions)

I would now like to turn the presentation over to your host for today’s Mr. Danny Herron, President and CFO please proceed.

Danny Herron

Good morning everyone, welcome to the VeraSun Energy conference call. I am Danny Herron, President and Chief Financial Officer for VeraSun Energy and Don Endres our Chief Executive Officer will join me on the call this morning. If you would like to follow along with today’s presentation, please visit verasun.com, go to the Investor Page and click the webcast link. Today’s call will consist of prepared remarks regarding our financial and operational performance for the three months for the year ended December 31, 2007. At the end of remarks, we will open up the lines for questions from analysts.

Before you get started, I need to remind everyone that today’s call contains forward-looking statements. Certain statements in this presentation and other written or oral statements made on behalf of us forward-looking statements within the meaning of the Federal Securities Law. Any forward-looking statements are not guarantees of our future performance and are subject to risks and uncertainties that could cause actual results, developments in business decisions to differ materially from those contemplated by any forward-looking statements, including those risks and uncertainties described in our Securities and Exchange Commission reports, copies of which are available on our website.

The actual results may differ materially from the expectations contained in the forward-looking statement. I would encourage each of you to seek independent investment advice.

If you will go to slide three, slide three references our merger and contains some forward-looking statements and cautionary language. We will talk about the merger progress a little bit later.

At this time, I would like to turn the call over to our Chief Executive Officer, Don Andres.

Don Andres

Thank you Danny, good morning everyone and welcome to VeraSun’s fourth quarter and fiscal 2007 earnings call. VeraSun produced solid results in 2007. At the same time, our team significantly scaled our business and achieved several key milestones for the year.

As you may recall, we set out a strategy early on to be large and low cost producer and we continue to execute on the strategy. Remember in tight times with either high corn prices or low ethanol prices or both, low cost suppliers continue to operate and generate cash while high cost operators are potentially forced to idle production. Although these marketing conditions are difficult, we believe our strategy is proving out.

During 2007, we increased our productions gallons and revenues while at the same time we remain focused in reducing our cost per gallon.

I will touch on the year-end results and then hand it back to Danny for more details on the quarter.

Turn to slide four. With solid financial results in 2007, total revenues were 848.3 million a 52.1% increase over 2006. EBITDA was 90.4 million and cash flows provided by our operating activities were 39.1 million, earnings per diluted share were $0.31.

In addition, we continued with strong operational performance. I want to point out our first priority of our team is to operate our facilities in a safe and environmentally responsible manner and in 2007; we maintained our record of zero lost time injuries and zero federal reportable spills or releases. This is a significant achievement in light of the fact we started 2007 with two operating facilities and finished the year with five facilities in production.

We grew our run rate capacity from 230 to 560 million gallons per year by starting up our Charles City, Iowa, Linden, Indiana and Albion, Nebraska facilities. Even with all of the construction and acquisition growth, our team continued to operate the fleet at high levels of output averaging 1.5% of nameplate capacity for 2007.

We continue construction on schedule at our Bloomingburg, Ohio, Welcome, Minnesota, and Hartley, Iowa, facilities. Bloomingburg is scheduled to start this month while Welcome and Hartley is scheduled to be online next quarter.

Let’s continue with slide five. As we reported, we successfully transitioned our marketing in-house on April 1 and we continue to develop our logistic footprints to best serve our customers. We are well positioned with infrastructure and all major ethanol markets including the new markets in the southeast. Products being delivered in the southeast with volumes increasing as we approach the summer driving season.

We also began construction on the Coral extraction facility at our plant in Aurora, South Dakota in December and we are on schedule to complete construction in two four of this year.

Our branded VE 85 business to grown with approximately 150 retail locations in more than 15 states.

Our same store sales grew 62% for 2007. VeraSun made significant progress in growing its business in 2007 with both organic and opportunistic acquisition growth. One of these opportunities was the acquisition of ASA Bio Fuel in August with three 110 million gallon sister facilities. We completed a successful integration and began operations at our Linden, Indiana, facility in August and operations commenced at our Albion, Nebraska facility in October. As I mentioned, we are on track to begin operations in Bloomingburg, Ohio, yet this month.

In November, we announced a strategic merger with U.S. BioEnergy that will take our production capacity to 1.64 billion gallons per year. Upon closing, we will have 16 new sister facilities of which 14 will have the capability to load and ship unit trains.

The shareholder’s vote is set for March 31 and we anticipate closing April 1. Our philosophy and strategy is that large size allows you to achieve low cost. Our management team is committed to gaining the synergies from our growth and focusing and reducing cost per gallon that size and scale should deliver.

If you turn to slide six, VeraSun revenue exceeded 840 million for 2007, which represents the compounded annual growth rate of 186% over the last four years. This is a significant milestone for our team and demonstrates our ability to grow the business.

You can see on slide 17, we sold over 353 million gallons in 2007, which is 128 million gallon increase over 2006 and represents 172% compounded annual growth rate over the last four years.

I will stop here and turn the call over to Danny to discuss our financial and operating results in greater detail, Danny.

Danny Herron

Thank you Don, I will begin on slide number eight. Let’s look at the key financial results for the quarter. Revenues were $312.4 million a 113% increase over Q4, 2006. EBITDA was $31.1 million, which represents 10% of revenues. Net income was 4 million and earnings per diluted share were $0.04 per share for Q4, 2007.

The Company continues to maintain a strong balance sheet with $154.4 million cash and short term investments at the end of 2007. Given the market conditions that existed during the fourth quarter, I think we have a solid quarter. Last quarter, we communicated to you that we expected ethanol shipments to be about 135 million gallons for the quarter and in fact, Q4 shipments were 134.4 million gallons. That translates to 1.45 million gallons per day.

In Q3, for reference point, shipments were 95.1 million gallons; we had a quarter-to-quarter increase of 39.3 million gallons or 41%. Another way to consider the positive impact of our growth is that we have been able to reduce our SG&A costs from $0.13 per gallon in Q4 of 2006 to $0.07 per gallon this quarter. With successful completion of the impeding merger, we expect another decrease in SG&A per gallon in 2008.

Going to slide nine, our quarterly revenues were $312.4 million an increase of 165.9 million or 113% from the fourth quarter of 2006.

If you move to slide number ten, you can see we had another strong quarter of ethanol shipments through the fourth quarter; our actual shipments were 134.4 million gallons an increase of 76.3 million gallons versus Q4 of 2006.

Moving to slide number 11, we had solid operating metrics for Q4 and 2007. Let’s focus on the left side of this chart where we show fourth quarter results, as you can see, our gallons of ethanol sold increased by 76.3 million gallons for 131% over 2006. Ethanol prices declined $0.30 per gallon versus last year, which represents a decrease of 14%.

Corn cost increased to $3.61 per bushed from $2.52 per bushel in 2006. Natural gas prices decreased to $7.12 for MBTU versus $8.51 a year ago.

Full year data for 2007 shows the same trends and is shown on the right side of the chart. We increased ethanol shipments 128.6 million gallons for the year a 57% increase over 2006. Ethanol prices decreased from $2.18 to $1.99 for a 9% decline.

Full year average corn cost increased $1.44 per bushel about 67%. Natural gas prices per unit declined 15% for the year.

Before I move to the next slide, I would like to give you our view of Q1, 2008, volume ethanol prices and corn prices. Based on our five current operating plants, we expect to sell between 170 and 175 million gallons of ethanol during the quarter. This is an increase of between 35 and 40 million gallons quarter over quarter.

As to ethanol prices, we sell most of our production for the quarter on a spot index basis and we currently expect our average selling price for the quarter to be in the range of $2.20 to $2.30 per gallon based on current market conditions.

Now for corn, based on our current market conditions, our corn cost for the quarter should be in the range of 4.45 to 4.55 per bushel.

Let’s look at slide 12 and our financial performance for the quarter and year end, left side of the slide shows quarterly performance. Revenues increase $312 million 113% above 2006. Q4 net income was $4 million or about 1% over revenues and EBITDA was 31.1 million or 10% of revenues.

Cash flow for the quarter was the use of cash of 36.6 million as continued our expansion strategy. Diluted earnings per share were $0.04.

On the right side, our year to date results, revenues 848.3 million up 290 points $5 million a 52% improvement over 2006.

Net income was 26.3 million or 3% of revenues and EBITDA was 90.4 million for 11% of revenues.

Cash flow for all of 2007 was a positive 39.1 million and year to date earnings were $0.31 per diluted share.

On slide 13, I would like to show you VeraSun compares to other companies. We contrasted VeraSun and eight other companies to compare how we rank on year over year sales growth. EBITDA as a percent of revenues and net income is percent of revenues.

These numbers represent year to date performance in a calculated and publicly available financial data. As you can see, VeraSun is the clear leader in the ethanol space, is near the top and compares favorably with the other companies listed.

Let’s go to slide 14 and I would like to summarize. VeraSun had strong results for Q4 and 2007. Revenues were a record $848 million, operating efficiencies continue to improve with production capacity having increased by 143% and shipments reached a record of 134.4 million gallons in Q4. We were success in assuming the right marketing of our ethanol in 2007. We successfully brought up our Charles City, Linden and Albion plants during 2007. The construction is on schedule at Welcome, Hartley and Bloomingburg facilities. We have started the implementation of our corn oil extraction strategy.

Before I turn the call back over to Don, I would like to make a few additional comments about the pending merger.

The VeraSun and U.S. Bio merger was announced in November 2007 are progressing as expected. We anticipate a closing at this quarter and everything is on track to get that completed. We have received Federal Trade Commission clearance, the Securities and Exchange Commission clearance for our proxy material. The proxy has been mailed to our shareholders. The vote will take place on March 31 and closing is planned for April 1, if shareholders approve the transaction.

In the meantime, we have assembled an integration team and the organizational planning and design is ongoing since the announcement in November. We did decide in February to establish our headquarters in Sioux Falls, South Dakota, and we are currently negotiating lease on office space that will allow us to complete the transition to Sioux Falls by late summer.

As with any merger, there are constant challenges to overcome; but I believe we are on track and we are making good progress to successfully integrate our two companies by the end of 2008.

I will turn the call back over to Don for some additional thoughts before we open the phone lines for your questions.

Don Endres

Thanks Danny, I would like to take a little time today to review the major drivers of our industry and why I believe the ethanol industry is well positioned to be an important and long-term domestic supplier of clean high-octane fuel.

First, a few comments about the current state of the ethanol market and the positive signs we are seeing from improving ethanol prices. During Q4, we saw ethanol prices go from a low of $1.69 per gallon in October to a price at the end of the year of $2.25 per gallon. That is a $0.56 increase in three months. Ethanol values have continued to improve to a current level of approximately $2.43 per gallon as reported by Bloomburg yesterday.

I would also like to address corn prices. Even though corn prices have increased, so has the value of ethanol. As a result, ethanol margins have improved slightly from the lowest levels in October.

The industry continues to grow quarter over quarter as described in slide 16. The industry is on track to more than double its capacity at the end of ’07 to the end of ’09. Even though the industry is growing, I think it is important to note that most of the growth is projected to occur in 2008 and then flatten our. There is almost no new construction to start in the last six months.

I would also like to add some color on current demand and future demand potential in slide 17. The yellow bars represent current RFG E 10 demand and the orange bars represent eventual E 10 demand. The blue bars represent the total potential demand opportunity.

As you might imagine, the largest opportunity is the east coast, pad one, which has the potential to almost triple current demand followed by the Midwest where current demand could nearly double. The significant market opportunity, which is being developed as a result of a robust ethanol blend margins.

Slide 18 shows a map of all ethanol facilities represented by the blue and yellow points primarily in the center of the map and unit train terminal receiving locations represented by the blue and orange stars at the destination markets. Industry is moving to unit train delivery with nine unit train-loading facilities in operation today and eight new facilities under construction for a total of 17 locations. Over time, we believe, most major market will have either train receiving capabilities. Industry logistics are continuing to improve.

Ethanol industry is growing and currently creating new demand for corn. There has been a great deal of news about how corn ethanol is driving up demand for corn. I want to put this in perspective with slide 19. Last year, farmers produced 2.5 billion bushels more corn than the previous year. The ethanol industry only needed an additional one billion bushels for new ethanol production. Farmers overshot this new demand by one and half times. There is actually more corn available this year than last year even when you subtract the new demand from ethanol. This additional 1.5 billion bushels is available for feed, export and food. Clearly, other market dynamics in addition to ethanol are at work driving corn and other commodity prices.

There is also a great deal of new about how corn ethanol is increasing food prices. As shown on slide 20, you may be surprised to know that less than ten percent of corn is directly used for food.

In addition, an important fact is that corn costs represent only a very small part of retail food price. For example, a $3.50 box of cornflakes has less than $0.05 worth of corn in it. You could double the cost of corn and that material will impact the consumer food price.

As we look forward, slide 21 shows why we believe there will be a significant amount of additional corn available for food, feed and fuel. Corn hills have more than doubled since the early 70’s. The U.S.D.A. now projects by 2015; corn yields will reach 178 bushels per acre up from 151 bushels last year. Corn yields are increasing at an interesting rate.

Slide 22 is a chart from Monsanto on projected corn yields. They project corn yields have the potential to average 300 bushels per acre by 2030. If you look at the national corn growers website, there are already yield contest winners well over 300 bushels per acre on non-irrigated farmland. With this kind of yield, I believe the challenge will not be about how much demand for corn will be; but rather as in the past, there will be too much supply. I would also like you to keep in mind that unlike U.S. oil reserves, which decline over time, corn production continues to increase over time.

On slide 23, I would like to put this all in perspective. For 2008, the ethanol industry looks to produce about nine billion gallons and the corn surplus appears to be about 1.5 billion bushels for the year. There is plenty of corn in the near term.

In the center column, you will see the U.S.D.A. projection of 178 bushels per acre by 2015 and the U.S. will produce enough corn to produce about 21 billion gallons per year.

On the right column, the Monsanto projection of 300 bushels per acre for 2030 will provide adequate corn to produce 60 billion gallons per year. Keep in mind, this projection assumes we hold acres and all other use is constant. Clearly, our country has a great deal of opportunity to produce significant more ethanol from corn.

In addition, we also see positive signs that the technology for advanced bio field will develop and when the technology is commercially ready, we believe it will be best utilized as add-on production capacity to existing corn ethanol facilities like ours.

On slide 24, I would like to summarize by underscoring that ethanol will be an important part of the U.S. fuel production going forward. As refiners move to heavier and more sour crude, octane becomes more expensive to produce. With ethanol’s octane rating of 114, it becomes a more strategic blend component over time. This dynamic is playing out in the southeast as some refiners have made the decision to sub octane C bob as their blend start for conventional gasoline.

From talking with refiners at this week’s NPRA conference, it appears the entire country will move to 10% to take advantage of the positive ethanol blending economics.

With oil prices over $105 per barrel, I am confident that our large and low cost strategy positions VeraSun to take advantage of this growing market opportunity.

That concludes our formal comments. Michelle, we are now ready to begin the question-and-answer portion of our call.

Question-and-Answer Session

Operator

(Operator Instructions)

Your first call is from the line of Patrick Forkin of Tejas Securities Group please proceed.

Patrick Forkin – Tejas Securities Group

Danny, on your guidance for ethanol prices and corn costing Q1, just doing some quick math here, it looks like the increase in corn cost is substantially offset by your projection of the increase in ethanol prices, does that sound right to you?

Danny Herron

Yes, it does Pat; as you are probably well aware of and ten-cent rise in the cost of corn on a per bushel basis is equal to about two and a half cents on the ethanol price. As long as we stay in that ratio and basically as one of Don’s slides showed, we have basically been in that ratio since November and it does look like we will continue to stay in that area.

Patrick Forkin – Tejas Securities Group

Okay and can you give us any outlook on natural gas for the quarter?

Danny Herron

We haven’t given any formal guidance on that. I think natural gas is a little over eight right now. It has risen a little in the last month or two; but that all depends on how cold the spring is. Not a substantial difference from where we have been in a lot of ways.

Patrick Forkin – Tejas Securities Group

Don, you had made a comment on the advanced bio fuels and that you are confident that they could be, I think you said an add-on to your existing fleet. Are you talking about the production would compliment that or you would actually be able to retrofit your fleet for some of those advanced bio fuels?

Don Endres

The former, that it would compliment, it would be a add-on in addition to the starch based processing. In our plant today, we have fiber as part of the corn and that fiber would be (inaudible) to convert salient to ethanol.

Patrick Forkin – Tejas Securities Group

Don, if you could, maybe your update on the political front with respect to some talks about the sugar ethanol, tariffs and the farm bill and anything else on the energy front in Washington.

Don Endres

From a sugar ethanol perspective, we don’t think that would represent a large new supply opportunity today. There is very limited capacity to process sugar ethanol today so we would have to see some facilities built if this favorable legislation for it. We just don’t see that much of it today.

Your other question?

Patrick Forkin – Tejas Securities Group

Just anything on the farm bill that may have an impact on you.

Don Endres

As part of the tax package, there is some discussion about taking down the blender’s credit by a nickel. As you know, the refiners have been able to maintain or keep the majority of that for some time now. It doesn’t appear, at least in the short run, that it will have a big impact. We want to make sure we continue to send the right message to refiners and get them to continue to finish out the blender infrastructure. We would like to see it stay in place. That’s the only real issue. We think from a scale sic point of view, providing production incentive to producers can be very helpful, can be very meaningful and we are optimistic that that could happen.

Patrick Forkin – Tejas Securities Group

Very good, thank you.

Operator

Your next call is from the line of Eitan Bernstein of FBR please proceed.

Eitan Bernstein – FBR

Good morning, congratulation on all things considered, a very good quarter.

Could you go over the clarification first quarter volume guidance of 170 to 175 million gallons?

Danny Herron

Given what we know today, Eitan, and what we shipped and what our inventory position was at the end of the year that would be what we expect the actual shipments to be during the quarter.

Eitan Bernstein – FBR

That was well above my forecast and with other numbers you gave, it really suggests a good outlook for the first quarter.

Don, looking at the supply side, it looks like you are projecting about 9.7 billion gallons in supply this year, can you talk around it just seems like we heard a lot about three months, six months delays but this suggests significantly more delays and maybe even some cancellations. Can you provide a little bit of color?

Don Endres

Eitan, the slide we are showing is 16 that show the production capacity each quarter is derived from industry sources and it indicates that there will be a billion gallons come in. We think that may be a little on the strong side. We haven’t experience that much product coming on. We use a third party source, so I think these numbers probably are a little on the optimistic side right now.

Danny Herron

Eitan, if you remember in the fourth quarter, I think, industry experts were calling for somewhere in the 1.2 to 1.4 billion additional gallons the fourth quarter of last year. I believe the actual number ended slightly less than 400 million gallons. We have seen a significant decline in the rate of plants coming on line.

Don Endres

You are probably aware there are a number of plants that the projects have been put on hold and a few actually well under construction have been put on hold just because of financing issues. We see that and we see a few plants that have been put in idle mode until market conditions improve.

Eitan Bernstein – FBR

Exactly and that was my question, historically it has always been, once the plant started construction, it went to completion; it seems like we are getting a significant amount of delays, a lot more fall out.

Finally, on what you are seeing in terms of demand, we all have the DOE numbers but they come out about two months behind. Can you provide any sort of color on the uptick and demand the past two months?

Don Endres

What I can say is the southeast market is developing very nicely. We see most of the major marketers prepared for blending ethanol at the 10% rate, so that is good. The fact that it has really opened up by some of the smaller marketers beginning early, we are feeling good about demand growth and again as we get into this grain timeframe. A couple of dynamics are one is just demand increases because of summer driving; but keep in mind as you work your numbers that inventories need to be filled. Transportation needs to be filled; I think that maybe it will require some ethanol ultimately to fill that out.

Eitan Bernstein – FBR

A good point and I if I can just one more, what are your thoughts and what are you thinking in terms of acquisitions. I am not asking for any specific details; but, if we are having as much fall out and delays, you must be seeing a lot of offers. Can you give us any sort of color in terms of our people still looking for your replacements costs plus type or you starting to get some real bargain basement offers and then what your thoughts on that would be. Are you in a bargain-hunting mode or are you more focused on integrating U.S. bio, in incremental capacity additions, and sort of address later on in the year.

Don Endres

We are completely focused on completing the U.S. merger; in fact, we closed the door to any discussions with other opportunities. Having said that, we think that there will be companies out there that will be looking, not so much combine because of financial issues, we in fact would want to find those companies that have strong positions, but rather just due to lack of liquidity with ownerships. I think that may be the driver and we think that there is opportunities to continue to grow. We think there are assets out there that would be interesting over time.

Eitan Bernstein – FBR

Excellent, thank you very much.

Operator

Your next call is from the line of David Driscoll from City Investment please proceed.

David Driscoll – City Investment

Don, good morning, this is Cornell Burnett calling on behalf of David Driscoll.

I just had a few questions. The first was about how much money do you have left to spend on the construction of your plants and how do you anticipate funding that?

Danny Herron

Cornell, this is Danny. In the first quarter, we expect somewhere between 75 and 100 million to be spent and in the second quarter will be between 50 and 75. The rest of those projects are always controllable; but we will get our three plants that are under construction, up and running for sure. Based on our current expectations of cash flows from operations and the cash and cash equivalent short term investments we have and our revolving credit facility, we feel we will be in position to fund those capital investments for the year.

David Driscoll – City Investment

Great then during the quarter it seemed like you built some ethanol inventories and do you plan on building any more inventory during 1Q ’08?

Danny Herron

Actually, what happens, it’s the end of the year and you always play the who is going to own the inventory at the end of the year. Our inventory was well positioned to be able to be shipped in the first quarter and in fact the previous question around gallons for the first quarter that is one of the reasons that our gallons will be a little higher than our production facts in the first quarter’s inventory should come down.

David Driscoll – City Investment

Great and then just two other questions, what is the anticipated tax rate for ’08?

Danny Herron

You should plan on about 35% on a GAAP basis. Actual cash taxes will be fairly insignificant given the level of depreciation and all that we have. For GAAP purposes on the P&L, you ought to plan on 35%.

David Driscoll – City Investment

Okay and lastly how much of ’08 interest expense do you expect to capitalize, what percentage?

Danny Herron

Our plants will be out by the end of the second quarter; you have to have almost all of the second quarter of the year will not be capitalized interest so that will be 41, $42 million. Then in the first half, maybe you will have 25 that is capitalized so full year interest expense 60, 65 million ranges.

David Driscoll – City Investment

Okay great, thanks a lot.

Operator

Your next call is from the line of Munsi Sengali of Lehman Brothers please proceed.

Munsi Sengali – Lehman Brothers

I just wanted to drill down on the liquidity question a little further. I think you said that CapEx for the full year is expected to be 175 to 275 million, could you give us the guidance on how much is contained in working capital, is it expected to absolve through the year and also is there any plans to expand 20 million credit facility you guys have that extra cushion of comfort.

Danny Herron

First, I will address the working capital. Given the inventory, build up we had in the fourth quarter there may be a little bit more inventory bill but remember our inventory is really based on at the end of each quarter how much in transit products that we have. We have our terminal locations that we store product but those aren’t going to significantly change from where we are at the end of 2007. Inventory would just be based on how many plants we have up and running and just the peculiarities of the quarter and the unit train is. Remember, a unit train is 3 million gallons of inventory; if we have five of them in route right there we have 15 million gallons of inventory on the rails at whatever price you think is appropriate.

We think working capital will stay about where it is for the balance of the year. As for the cost of expanding the revolving facility, I wouldn’t anticipate any cost on them. We are in discussions to expand our revolver from the 30 million up to a total of around 210 million. That facility with have an accordion feature in it so we won’t expand it instantly to 210 but obviously it only serves the organic VeraSun plants. It would be backed by out inventory and receivables coming out of the five organic plants. The ASA facilities are under a term loan and construction loan agreement that they would not participate in that revolver and with the anticipated closing of U.S. Bio, they also have financing in place for their plants that’s more of a project debt financing.

Munsi Sengali – Lehman Brothers

Are there any governance on those project’s debts that we should be aware of?

Danny Herron

Yes, they will variously be filed in our S4 in the U.S.Bio side on the ASA plants, we bought those are normal construction financing and project debt and they have repayment schedules that keep the cash trapped at those facilities. They are self-funding and they are all profitable at this point; I don’t anticipate any issues there.

Munsi Sengali – Lehman Brothers

Thank you and one more question from me. You are talking about increasing demand in the southeast market, could you talk specifically with respect to VeraSun and how you guys leave some space in the southeast market. You guys already have your trains going to that market or do anticipate what month you expect to start supplying to that market in terms of your infrastructure?

Don Endtes

Munsi, we do have terminal space and we in fact have been delivering products to the southeast now for some time. We are in very nice shape. Obviously, we continue to optimize infrastructure and work with our customers on additional locations but we are in very good shape.

Munsi Sengali – Lehman Brothers

How many terminals do you lease currently in the southeast?

Don Endtes

I don’t know if we had released that but there’s a few large terminals down there that we deliver to.

Munsi Sengali – Lehman Brothers

Is it mostly Georgia or have you started sending products to Florida as well?

Don Endtes

Most of it is in Georgia today in terms of the product flow.

Munsi Sengali – Lehman Brothers

Okay, thank you.

Operator

Your next call is from the line of Chris Shaw of UBS please proceed.

Chris Shaw – UBS

Good morning, you did a fair job of outlining your outlook for the dynamic corn longer term but I was wondering if you guys had any opinion near term for the remainder of this year. I was noting (inaudible) 6.5 million acres, the number for this year and going forward. I was thinking, if that number came up this year that people I think corn will be higher so I wondering what you guys had in near term.

Danny Herron

Chris, we have talked to a lot of different consultants that advise us on corn prices and where they are going. I would say the consensus range out there is somewhere between 88 and 91, 92 million acres and depending on who you talk to, it is all over the board. I saw some pieces yesterday that suggested the lower number and then I saw some pieces on fertilizer purchases, a survey of fertilizer purchases that might suggest above 90 million acres. Our thought is it is going to fall somewhere in that 88 to 92 and if you do the math on the chart Don talked about and so many people forget about the distillers that comes back into the corn supply. If you do the math, even at 90 million or 88 million acres, we have plenty of corn for next year.

Don Endtes

I also have a couple of comments. When farmers do the math today, it would still favor corn at least in the major corn growing areas. If you have the working capital (inaudible) I think it is selected to grow more corn. I would also say, last year we had two areas with significant drought in the western corn belt in fact specially in South Dakota, it had 42 days of no rain, not one inch of rain during pollination and yet the corn survived and in fact produced 150 bushels of corn. That is impressive and the southeast had very dry conditions. I think the number that may be more interesting than even acres would be yield. Only time will tell and it is obviously hard to know and I am sure there will be areas of the country that won’t have perfect growing conditions but on average, we think there could be some improvements of yield over what has been projected.

Chris Shaw – UBS

Okay thanks, I know that at the (inaudible) conference there was some talk around of moving to sort of E 15 or E 20. Just personally, do you guys have any handicap on when you can see something in E15 or E 20 come out (inaudible).

Don Endres

As it relates to E15 and E20, there is some early work done with small groups of vehicles and the results are encouraging. That’s basically providing support to launch much larger studies. It is hard to know where that comes out. I am not going to try to predict; I would just say again that the results so far are very good. We continue work with our partners in the auto industry to understand the issues and challenges; but, I also want to point out that the autos have stepped up with significant numbers of flex-steel vehicle models, those are on the road. In fact, it may even make more sense for our industry to even be looking at 20 and 30% blends for those vehicles because the value is better value for ethanol producers, consumers really don’t see any mileage differential and there is more ethanol to put in those flex-steel vehicles. We are working on both fronts and we are optimistic that over time there is going to be significant additional demand.

Chris Shaw – UBS

Thanks a lot that is helpful.

Operator

Your next call is from the line of Mike Judd of Greenwich Consulting please proceed.

Mike Judd - Greenwich Consulting

Good morning, a question on your balance sheet, looking on the front page of your release just indicates that your cash on hand for short term investments were 154 million at the end of December and as I looked at the end of the cash flow statements, the amount of cash on hand was around 111 million. The difference is some sort of short-term investments is around 43. I think that I understand that 3 million of that are auction rate securities, what is the balance and is it liquid?

Don Endres

Mike, that 43.2 million represents where we were at the end of the year and we did have short-term investments that consisted of triple “A” rated auction rate securities, basically, issued by municipalities.

Subsequent to the end of the year, we have exited all of those investments other than 3 million. We did it at no loss to the principal so they were liquid; but we did go ahead and split that out on our balance sheet. Currently we have remaining $3 million of ARS’s should clear in April.

Mike Judd - Greenwich Consulting

Roughly, 40 million of auction rate securities were sold, right?

Don Endres

Were sold and no losses incurred.

Mike Judd - Greenwich Consulting

Okay, thanks a lot.

Operator

Your next call is from the line of Bryan Milbank of Piper Jaffray please proceed.

Bryan Milbank – Piper Jaffray

Good morning, I am seeing that your capacity looks great; you are above nameplate and I was just wondering are you seeing actual conversion increases or just through put time?

Can you characterize that for me?

Danny Herron

Bryan, most of that is just increase, the yields have been good but we continue to find ways to just move our production through the system.

Bryan Milbank – Piper Jaffray

I was wondering, when I look at your balance sheet as compared to some of the other manufacturers, you obviously are carrying more debt and I am wondering if there is any plan to begin paying that off and any accelerated rate or where you guys standing with that?

Danny Herron

Bryan, obviously we are focused on getting our plants that are under construction completed and a lot of that answer will depend on the margins. The one thing I would say, beginning in the third quarter we will have 400 million gallons per quarter of capacity so if margins expand and they normally in the summer driving season, we would normally expect pricing to get better, we believe there is plenty of corn available on a true supply and demand. Corn markets have been driven more by optimistic financial markets than they have by supply and demand, we believe. We think margins could expand and if they do, we will generate a tremendous amount of cash with 400 million gallons per quarter of shipments. We will wait and see where that is. Obviously, we are going to run a prudent balance sheet and continue to fuel our growth and meet all of our debt obligations. I think time will tell on that.

Don Endres

Bryan also for both the ASA plant as well as the U.S. Bio plant, there is waterfall events that do repay debts in an automated fashion.

Bryan Milbank – Piper Jaffray

Then one quick question, I just wanted to make sure in the past your ethanol pricing to report include transportation. I just wanted to make sure that at $1.87 that you are reporting, that still includes transportation?

Don Endres

It does; our transportation runs depending on the quarter, somewhere between call it $0.16 and $0.18 per gallon, depending on where the mix of products goes for the quarter.

Bryan Milbank – Piper Jaffray

Very good, thank you.

Operator

Your next call is from the line of Ian Horowitz of Soleil Securities Corporation please proceed.

Ian Horowitz – Soleil Securities

Good morning, a couple of questions for clarity, you talked about 175 to 275 in terms of CapEx for the year; but the three plants are going to be done in the first half. Is the remainder of the CapEx just maintenance across all the plants?

Danny Herron

No, it would include our oil extractions that are the work currently under construction at the Aurora, South Dakota facility. You may recall that is scheduled to come up by the end of 2008. It would include that CapEx and there are some other placeholders that would expect to spend, given our current view of markets. Those are always events that you could postpone if you choose to.

Ian Horowitz – Soleil Securities

Yes, I know, I forgot about them. Do we have a dollar figure for the oil extraction, Danny?

Danny Herron

The oil extraction is around 35 to 40 million in the first plants and it will be about 30 in the subsequent plants. You have some up front engineering and design work in the first one.

In our K, Ian, we gave you a little bit of color around the quarterly spending.

Ian Horowitz – Soleil Securities

Is there color on the oil extraction or just overall?

Danny Herron

Just overall, on the overall capital spending.

Ian Horowitz – Soleil Securities

How much has been spent so far at the oil plant?

Danny Herron

We have probably spent in the neighborhood of five to ten million; we have ordered the major piece of equipment and that has progress payments as a complete part of the project. It is in the neighborhood of five to ten million with engineering work and stuff.

Ian Horowitz – Soleil Securities

I haven’t done the math; but, if you are running 140 million nameplate basically 100 to 105% utilization rate, do you know the significant volume of inventory that will be coming out, which is getting you to the 170 and 175, is that correct?

Danny Herron

Most of that increase is inventory we do participate occasionally in purchase and resale of gallons. Once again, what we are trying to become strategically is a one-stop supplier to our customers. At times, if we have to buy a little product to satisfy our customer demands and we are already in that market, we will do so.

Ian Horowitz – Soleil Securities

Okay, Bloomingburg, Hartley and Welcome, can you give me when those are projected to come on again.

Danny Herron

Bloomingburg as Don mentioned, is expected to start grinding corn this month and Hartley and Welcome will be in the second quarter.

Ian Horowitz – Soleil Securities

Did I hear you say, toward the end of the second quarter?

Danny Herron

I don’t think we said either way; we clearly just stated in the second quarter those two will be up and running. They are schedule that we expected. In Bloomingburg, they will be grinding corn this month.

Ian Horowitz – Soleil Securities

No, forward contracts on corn or natural gas at this point?

Danny Herron

Not at this point; as you will see in our K, basically, you are focused on the short term of this run up in corn and as I think, our first question was around the ratio of corn prices, ethanol prices, since November they moved pretty much in unison. Even though corn has increased $0.80 maybe $1.00 per bushel since early November, ethanol gas gone up $0.20 to $0.25 and that keeps it in balance on the ratio.

Ian Horowitz – Soleil Securities

One last question and then I will hop back in. The co-product opportunity this quarter was definably decent and on the sequential basis, looked very good. We are seeing much higher prices currently that the 126 you saw in the fourth quarter, right?

Danny Herron

Yes, that is correct; it continues to improve with corn.

Ian Horowitz – Soleil Securities

Do you expect to see that correlation to corn continue throughout the year?

Danny Herron

We do.

Ian Horowitz – Soleil Securities

Okay, thanks guys.

Operator

Your next call is from the line of Melinda Newman of Post Advisory Group please proceed.

Melinda Newman – Post Advisory Group

Hi and congrats on the quarter; I thought it was a good quarter given the conditions.

On the corn outlook, your first quarter corn costs seem relevant to where CBOT has been seem low and I was wondering if you could comment on what CBOT versus what you are actually getting corn for at the plant, whether that basis has improved for you.

Don Endres

There are two things there, first – we always maintain a basis differential relative to CBOT so we can have a negative basis where our production facilities are located; but, there is also a lag, we buy corn in advance because we are upper trending corn market on average we are averaging in higher priced corn with lower priced stuff. That is probably the effect you are seeing.

Melinda Newman – Post Advisory Group

Your local basis has not increased?

Danny Herron

Our local basis has widened out some as you get into the winter and more corn is available locally. The river freezes up so you have less opportunity to ship corn out of the area. The basis has widened a little bit.

Melinda Newman – Post Advisory Group

That is just normal seasonality versus…It sounds like you think that corn is a little ahead of itself and I am just asking whether outside of the normal seasonality, you are seeing the effect of that with local versus CBOT.

Danny Herron

Most of it, as Don mentioned, is just the timing issue, the end of the year.

Melinda Newman – Post Advisory Group

Okay and on the ASA Bank, I just want to confirm, I have read the language and the 10K and I think you have been clear; but that there is no maintenance coming in terms of maintenance leverage test or maintenance interest coverage or anything like that.

Danny Herron

On the ASA securities on the facility?

Melinda Newman – Post Advisory Group

On the facility, yes.

Danny Herron

There are certainly the waterfall that pays back the term loans.

Melinda Newman – Post Advisory Group

Right but are there any things that require a certain leverage ratio on an ongoing basis or anything like that? I think you should be able to meet your amortization easily.

Danny Herron

I think we are fine on those.

Melinda Newman – Post Advisory Group

The third question, it sounds like you are bullish. Certainly given the supply chart that you have, it seems like as we get into the year that supply and demand should tighten considerably. I think everyone has that opinion; but, the discount to gas persists and is quite stubborn aside from the blip up that almost eliminated it after the legislation passed, it has widened out again to something like $0.20 to $0.30 that is where it seems to stay.

You put that chart up on the de-loading plant, de-loading facilities. (Speak) on what the timeline is like or could tell us more on who the developers are and if you have had any substantive conversations with them because how long do you think this discount is going to persist, when do you think we are going to see it lighten given that the demand should be improving here?

Danny Herron

It is always hard to guess, what I would say is because there is significant amount of production capacity that has been under construction the perception at least was that there would be too much and there would be more coming on that what we’d have blend capacity for. The fact of the matter is, production facilities have delayed in most cases, we see delays out there in the range of 90 days some more than that. At the same time because the blend margins have been so great, we see a lot of activity, even in small markets where marketers are trying to take advantage of this incredible blend value. We are optimistic that as we enter into the driving season that prices will stay strong and continue to improve and (inaudible) what happens to gasoline. We continue to see ethanol values improving and we hope at some point that we would get back much closer and back north of where right priced gasoline is.

Melinda Newman – Post Advisory Group

Who are the developers of the plan de-loaders?

Danny Herron

They are all over the place; there are lots of third parties that have jumped in to develop it. In addition to the majors, the majors have put a whole lot of effort on this as well. The majors know they need to do it because the smaller marketers will go out there, offer ethanol a blended fuel, and be able to do it at a lower price; therefore, they lose their gasoline gallon as well. This is something that is very strategic and very important to both marketers who are trying to grab that dollar as well as the large refiners trying to make sure they maintain their gasoline position.

Melinda Newman – Post Advisory Group

What do you think the timeline is for those facilities coming up?

Danny Herron

We think that by summer driving season, you are going to see a large portion of the southeast be blending ethanol. We see California continue to increase their blending. Our gut feel on that is and we said this before, by the end of 2008, we think that they are going to be at or near 10%. The Midwest actually we have ethanol plants around these markets so we see a lot of activity there. We are getting optimistic that the fall kind of trough we move through was the worse case scenario and now we see the improving market conditions. Again, it is a lot simpler to put a tank in a reposition blending that it is to build an ethanol facility; it takes more time.

Melinda Newman – Post Advisory Group

Then, Don, on co-products, can you give a little more color on what you are seeing in the BGGS market. Given where corn prices are and that, you are planning this oil extraction, whether you are seeing interest from swine or poultry any increases there and what your expectations are for the year for co-product value relative to corn.

Don Endres

Absolutely, in fact, what was interesting BVG is that it is a much higher protein feed than what corn is and protein is the most expensive component in dairymen ration or port producer or beef producers. In those cases, it takes time for them to switch over but we see strong demands, not only domestically but internationally there is a large portion over distiller’s grain that is now being exported. It is a real value when you compare it with other protein supplements. We are again optimistic. I know there is a lot of concern early on that we would over supply the distillers market; but, there is a large infrastructure in place to move feed just like other grains and it is working.

Melinda Newman – Post Advisory Group

All right, thank you.

Operator

Your next call is from the line of Kelly Dougherty with Calyon Securities please proceed.

Kelly Dougherty - Calyon Securities

Good morning, I was wondering if you could give us some color on your conversion ratio during the quarter and maybe some expectations going forward, especially as you use less gasoline as a denaturant.

Danny Herron

Yes, in fact we have backed off denaturant from near 5% to down around 2% that does have an impact on your denature yield. Even having said that, we are still in that range of high 2.7 yield rates and we think that will stay strong. Obviously, if ethanol or I will say when it moves above the price of gasoline and then you are going to see yield improvement because we are adding that additional bond into our output.

Kelly Dougherty - Calyon Securities

Okay, so you think the levels that they are now are probably something to expect going forward?

Danny Herron

Yes, we would say again the denature basis, there is opportune to improve again as we drop off gasoline.

Kelly Dougherty - Calyon Securities

Great thanks. I was just wondering if you could give us a little more color on cellulosic. Obviously, that is where the market has to move; but, I am just wondering if you could share you thoughts on maybe the time frame or how VeraSun directly or indirectly through your investments, how you plan to get involved in the cellulosic end of things.

Don Endres

Good question, Kelly. Our view is that our strengths, our core competency is putting the capital to work in large production facilities and officially operating them. We are very interested to see, in fact we have been working very closely with some of the leaders in that space and as they perfect their technology and we have capital that is ready to be deployed, then we consider making those investments. But, there are a large number of groups and investors out there doing the early work on it and again, we see positive signs.

Having said that, I want to draw you attention to the potential that corn ethanol has which is premise that we have to move to cellulosic ethanol. I think we can and will move to cellulosic ethanol but I would just say don’t count corn out. I think we are in (inaudible) continue to improve all the time.

Kelly Dougherty - Calyon Securities

All right, thanks so much guys.

Operator

Your next call is from the line of Mark Miller of William Blair please proceed.

Mark Miller - William Blair

Good morning, I was hoping you could discuss a little further, what you have learned through the integration of process simulator. I realize the Company is not versed yet but as you’ve been working with the folks at U.S. Bio where you might see incremental opportunities and then Danny, you discussed the constant challenges that anybody would face in this type of process. What are the biggest challenges as that you face in integrating the Companies?

Don Endres

Let me just say first from an integration point of view, things are working very well. I think the teams came together very nicely. In fact, our initial plan was that we wouldn’t make the decision on the off location until after we closed the deal and after we do (inaudible) cutting stone. The team said, we need to decide where the office will be; we moved forward much more quickly; I think we are working well together and that is from an integration standpoint, a people standpoint, we are in great shape.

Danny Herron

Mark, I guess I would refer you to the S4 that was filed and had some PRO FORMA estimates in there instead of getting into the details of it. I would echo what Don said, the team came together in early December and started the integration planning and are very proud of the chemistry that started there, the fact that we are focused on actions; it is real easy to make decisions; it is a lot harder to execute them. The team has a bias toward execution so as Don said, we are able to get the location decided early and that just allows us to get a head start on it. We anticipate it closing soon and we will be out and we will give you more color after closing around the synergies and the expectations of timing around those synergies.

Mark Miller - William Blair

Okay and then my second question is, I guess this is the first conference call where the stock has traded below the book value. I would like you to comment on that kind of a summation, a lot of questions that have been asked earlier; but, simplistically the market is saying, you are not going to earn your cost of capital. Based on what you see and hear, where do you based on your own views, where is the biggest disconnect versus the current apparent expectations in the market?

Don Endres

I think, first, there is a lot of misinformation that is out there and unfortunately, I think it has a lot of say at least the retail investors scared out of the space and that is unfortunate because there is so much potential. Having said that, we are just focused on executing on the business and producing cash, bringing cash to the bottom line and we think over time, the investors will figure it out; but I think a lot of this is just concern over whether or not corn ethanol makes sense and you know where we stand on that. We are very excited about it.

No one knows really, what the market will do; I can tell you I haven’s sold one share of my position.

Danny Herron

Can I just add a couple of things, I think as you look back two years ago when we first became a public Company and you look at our earnings, we had SG&A costs approaching twenty cents a gallon and it is now running about seven and it will run lower in the future. On a structural basis, we have lowered out cost of running our Company versus what it use to be. I don’t know that that has been reflected in the expectations. I think sometimes people miss the volume we are going to have and how large that volume is. We are investing in this business for the long term, as Don mentioned, he hasn’t sold any, a lot of our senior managers are very much invested in the future of the Company. We are building the Company for the long term and unfortunately, the pitfalls of being public is you have quarterly fluctuations that really don’t reflect the level of performance that your Company performs at. It is more round up.

As Don mentioned, maybe misinformation or expectations that aren’t based on the facts we have internally. We are still very bullish on the space. If you look at the volume and the plateaus we think are out there, we think it will be a good environment in the future; but it takes 18 to 24 months to bring the facility up and online. We think our better days are ahead.

Don Endres

Mark, I am again going to point you to the comparison of other companies. Not only ethanol space but in agri-business and refining space, we think we compare very nicely.

Mark Miller - William Blair

Yes, it looks like it was a decent quarter as well, thanks.

Operator

Your next call is from the line of Thomas Nowak of Merrill Lynch please proceed.

Thomas Nowak - Merrill Lynch

Thanks, my questions were answered already.

Operator

Your next call is from the line of JimMing Liu of Ardour Capital please proceed.

JimMing Liu - Ardour Capital

Good morning, I have a couple of questions, the first one can you comment on the import of ethanol in terms of the impact on the pricing of ethanol in the coming quarters?

Danny Herron

We don’t see the arbitrage has been closed on that for many months now and there was some product that was continuing to glow through with existing contracts; but, today, at least, it wouldn’t make a great deal of sense for a blender, marketer to go out and buy corn product when we can buy it for less here. We don’t see any significance in new product in this direction.

JimMing Liu - Ardour Capital

The last time I check, the spread between foreign ethanol and domestic ethanol, the spread they become wider (inaudible)?

Don Endres

No, in fact, we think there will be other markets for that worldwide and that there will be better opportunities for those gallons than the U.S.

JimMing Liu - Ardour Capital

Okay, my next question is about the economics of audio extraction from DDGS? Can you give me…Do you have any idea what the quality of value you are going to extract from the DDG basically in terms of what the content of (inaudible) acid and the (inaudible) content in there?

Don Endres

I can’t give you that level of detail here; but, what I can say once it is up and running, it will add about ten to fifteen cents for ethanol gallon EBITDA to our business. It is a very attractive business. What we haven’t modeled in there either is the impact on improving value in distillers grain. We stay with our distillers grain model; but we actually think there will be upside because there is an increase inclusion rate which improve its value because it is a low cost protein source and it will also lower transportation costs which means we will sell more locally. It actually feeds more like soy bean meal, in fact, we refer to it as distillers meal and there will limited supplies available so we think there’s even upside from that ten to fifteen cents.

JimMing Liu - Ardour Capital

Yes, that’s the part I couldn’t understand because as far as I can tell, the prices for all your corn you extracted from DDGS is much lower than the numbers you gave out in the last quarter that’s why I asked the question about the quality of value extract from the DDGS.

Danny Herron

Today we are not extracting oil.

JimMing Liu - Ardour Capital

(Inaudible) what you have projected.

Don Endres

Our projections were based on industrial grade corn oil, not food grade. So, if you were seeing a number lower than what you may have seen for food grade that’s what it would be. We are currently performing tests that will tell us whether we can take it into the food grade market; but, we have been conservative on our estimates and used industrial grade corn oil.

JimMing Liu - Ardour Capital

Is that $0.35 per pound?

Don Endres

That number is probably higher in today’s market than that; but that’s generally what we’ve looked at in the past.

JimMing Liu - Ardour Capital

I see, but I have a much lower number for similar quality of corn oil. My last question, should I expect any expense related to the merger, addition expense?

Danny Herron

There will be some deal related expenses that we will hit during the quarter; we haven’t detailed those out in a lot of detail because of the merger certain expenses related to the other side will become part of the opening balance sheets. For instance, all derivatives they may have on the other side will become market to market. But on the opening balance sheet, we haven’t detailed that out for you; but, there will expenses probably on our side that consist of just restructuring and moving expenses and office shut down expenses.

JimMing Liu - Ardour Capital

Any idea of dollar amount.

Danny Herron

We haven’t disclosed anything on that.

JimMing Liu - Ardour Capital

Okay, good, thanks.

Operator

Your next call is from the line of Eric Calamaries of Wachovia Capital Market please proceed.

Eric Calamaries - Wachovia Capital Market

Good morning, if we could zero in a little bit on some of the co-product revenues, where is the current spot on the DDGs on a part time basis?

Danny Herron

Eric, I think it is probably in the 140 range. Let me pull out a sheet here that gives me some better color on that.

Eric Calamaries - Wachovia Capital Market

Also, while you are looking at that, I am curious as to, on a part-time basis also, the carbon dioxide as well. Just kind of where that shakes out these days. Also, while you are looking at those, more generically, what gives you confidence that the current relationship between ethanol and the change in corn will continue since you are not hedged in taking the spot on the feed stock that is probably one of the bigger near term issues that because decoupling that will be problematic. What gives you clarify the relationship is going to continue the way it is.

Don Andres

Okay and we will give you a good number on distillers. Keep in mind, a very good question but keep in mind that today there is about in the range of four to five billion gallons of ethanol that are required to make gasoline in the reformulated market. They have to have products. For low cost producers, there is this massive hedge in place that you might work through a transition period but eventually a product will be need for the market so either ethanol will adjust or corn will adjust. In fact, that happened back in ’94, ’95 timeframe, if you look, ethanol delinked from its value relative to gasoline and linked with corn. We believe that in these times, it makes much more sense to keep a balanced book between what you have sold in ethanol and the way you have it sold and the same with corn. Again, because there is this natural large hedge in place that eventually plays out for large producers.

Danny Herron

The current distillers pricing is around $140 per ton. My recollection was correct.

Eric Calamaries - Wachovia Capital Market

What about CO2?

Don Andres

We don’t sell any CO2 today.

Eric Calamaries - Wachovia Capital Market

Going back to the larger issue on the relationship, and I appreciate that response, is it not fair to say that also, from a blenders point of view, it would be cheaper now to blend butane than to blend ethanol on a kind of go for it basis. How do you think about that?

Don Andres

No, in fact olefins are more highly value today in the classics market today than it would be to blend it as fuel and the octane is worth…There is a report out months ago that at seventy dollar crude, you are about 375 value for octane and obviously it is much higher than that today. In fact, it is interesting; refiners can actually make a better spread on blending ethanol than they can on converting crude gasoline. That’s why this dynamic is playing out. There is a strong desire on the part of, not only refiners, but also marketers and lots of third parties to blend the product.

Eric Calamaries - Wachovia Capital Market

Great, thanks for that information.

Operator

Your next call is from the line of Luke Meltic of TPG Credit please proceed.

Luke Meltic - TPG Credit

Thanks, my questions have already been addressed.

Don Andres

Okay, thanks Lou.

Operator

Your next call is from the line of Bryan Milbank of Piper Jaffray please proceed.

Bryan Milbank – Piper Jaffray

Actually, my questions have been addressed also. But I would like to say that I am incredibly impressed with the quality of the questions in this call. I think the market is responding. I think they are getting educated.

Don Andres

We are as well.

Bryan Milbank – Piper Jaffray

Thank you.

Operator

That does conclude the question and answer session. I will now turn it back to management for closing remarks.

Don Andres

We would like to thank everyone for participating today. Obviously, we are very optimistic about our business as well as the industry and very much look forward to reporting our next quarter results, thank you.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect.

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