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Green Plains Renewable Energy Inc. (NASDAQ:GPRE)

Q2 2012 Earnings Call

July 26, 2012 11:00 AM ET

Executives

Todd Becker – President and CEO

Jerry Peters – CFO

Jeff Briggs - COO

Steve Bleyl – EVP, Ethanol Marketing

Jim Stark – VP, IR and Media Relations

Analysts

Patrick Jobin – Credit Suisse

Farha Aslam – Stephens Inc

Craig Irwin – Wedbush Securities

Lawrence Alexander – Jefferies

Matt Farwell – Imperial Capital

Ian Horowitz – Topeka Capital

Brett Wong – Piper Jaffray

Operator

Good day and welcome to the Green Plains Second Quarter 2012 Financial Results Conference Call. Today’s call is being recorded.

At this time, I’d like to turn the call over to Jim Stark. Please go ahead.

Jim Stark

Thanks, Melissa. Welcome to our second quarter 2012 earnings conference call today. On the call will be Todd Becker, President and CEO; Jerry Peters, our Chief Financial Officer; Jeff Briggs our Chief Operating Officer; and Steve Bleyl, who is our Executive Vice President of Ethanol Marketing will be here to go through our results and to talk about recent developments for Green Plains.

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

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

Please refer to page two of the website presentation and our 10-K and other periodic SEC filing 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’d like to turn the call over to our CEO, Todd Becker.

Todd Becker

Thanks, Jim. And thanks for joining us this morning. Our focus has been and remains on the sustainability of our company. Over the last three years, we have acquired technologies, built in acquired businesses and expanded segments that added revenue and income, which has reduced our dependence on our Ethanol production segment. At the same time, we have repaid debt and built our liquidity.

We believe that we are in a good position to continue to operate our business and weather the trope margin environment, we continue to experience in the ethanol industry. I’ll discuss the margin environment and get into the outlook for the industry a little later in the call.

We did issue our second quarter earnings release yesterday after the market closed and while we were not happy with the overall results, we are pleased with the performance of our non-ethanol operating segment. Our revenues in the second quarter of 2012 were $870 million and we reported a net loss of $7.6 million or $0.25 a share. There is a $5 million improvement over the loss in the first quarter of the year, and we believe as we navigate through a challenging third quarter, we should be profitable in the fourth quarter of 2012, which we will talk to in a little bit.

We produced 172 million gallons and we sold 177 million gallons of ethanol in the second quarter. The 5 million gallon difference was production held over from the first quarter of the year.

Operating income before depreciation for the ethanol production segment was slightly positive in the ethanol segment for the second quarter. Our ethanol yield improved to a record 2.85 gallons of ethanol production of corn. On an ongoing basis, we have worked to refine the ethanol production process and get more out of the corn we grind. Whether it has been through our new enzymes or improving process loads, as the company and an industry, we continue to seek improvement in yield.

We have deployed the technology, we refer to as fine-grind in our Shenandoah plant and we are trialing this technology at another one of our facilities. The process goes after that last 7% of the starch for enzyme conversion to sugar, breaking larger starch particles into smaller ones and breaking starch away from fiber, protein, or fats in the corn kernel.

We believe this technology could improve our ethanol yield 2% to 3%, and can also increase corn oil recovery yield 10% to 15%, both having positive contributions to the bottom line. We will keep you updated on the progress we make on this technology deployment.

So as we evaluate our operations daily, we consider a number of factors as to whether to slow down—or shut down—each of our plants. These factors vary from plant to plant and region to region, and for Green Plains, the improvements we have made from the debottle-necking production; to implementing corn oil extraction and now to evaluating fine grind technology—all weigh in our decision process for production levels. In this decision, we also look at additional railcar re-purposing. To date, besides the announced slowing of a few of our plants, the right financial decision—for us—was to keep running.

We generated a record $14.6 million of non-ethanol operating income in the second quarter from our corn oil production, agribusiness and marketing and distribution segments.

Corn oil production also achieved a record high production of 38.6 million pounds on a record conversion of 0.64 pounds per bushel of corn. Both our agribusiness and marketing and distribution segments had an improved quarterly performance versus the first quarter of the year with $2.4 million and $2.9 million dollars of operating income, respectively.

We now believe our non-ethanol operating segments should produce approximately $60 million dollars of operating income in 2012. This $10 million increase in projected non-ethanol operating income is partially related to our ability to increase the number of railcars re-deployed to crude oil transportation to over 500 cars for the rest of 2012.

We have not experienced any significant effect on our ethanol plant operations as a result of this re-deployment effort. In fact, the third quarter, will see almost a full benefit from this program, with better expected performance in our marketing and distribution segment.

As we noted in our earnings release yesterday, we have locked in approximately 40% of our ethanol margins for the fourth quarter at profitable levels. This combined with positive results from our non-ethanol operating income segments gives us the confidence to say that we believe we’ll return to profitability in the fourth quarter. This estimate is based on the current Q4 curve combined with our locked volumes. Obviously this changes daily, but at this point, even with a weaker forward curve, we still are projecting a good recovery in the fourth quarter, helping neutralize the defensive third quarter.

What is a bit different this year is that we have most of the physical corn bought against this program as compared to last year when we just locked the financial crush and remained exposed to the volatility of the U.S. corn basis, which was extreme. The combination of Q3 and Q4 together, as it stands today, neutralize each other and we expect our liquidity to remain consistent with current levels.

Now I’d like to turn the call over to Jerry to discuss our liquidity and financials in more detail and then I’ll come back on the call and discuss forward ethanol margins, where we stand on industry fundamentals and BioProcess Algae.

Jerry Peters

Thanks, Todd and good morning everyone. I’d like to start today by discussing a topic which seems to be on a lot of people’s minds lately. That’s our liquidity position and balance sheet. Given the current margin environment, we are often asked by our debt structure including our bank covenants. So I’d like to address that in some detail this morning.

In general, all of our bank debt financing is at the subsidiary level with each of our ethanol plants, our grain company and our marketing businesses holding the debt. Each of these subsidiary financings has four primary financial covenants: minimum net worth, minimum working capital, maximum capital expenditures and a fixed charge, or in some cases a debt service, coverage ratio. It is important to note that each of these covenants is structured to provide an equity cure if needed. So to preemptively address a financial covenant for a particular subsidiary, we can inject equity from the parent company and add that equity into the particular ratio calculation.

By using our corporate level liquidity to make an equity injection into a subsidiary we are able to avoid violating a financial covenant. In fact we can take that action on a retroactive basis when we have determined our final results – financial results.

This is an important way that we have positioned our balance sheet and structured our loan agreements to maintain control even in a difficult margin environment. In fact, we continually stress test our available corporate liquidity against our forward expected financial performance, and are confident we have sufficient liquidity even during a period of sustained margin compression lasting through the fiscal year.

As we have said many times in the past, we focus on preserving, protecting and growing our corporate liquidity to provide a flexibility we need to manage a commodity processing operation. At a more strategic level, we think about our sustainability in tough margin environments this way. Our ethanol debt service is approximately $0.10 per gallon or $73 million per year. When you are factoring our term debt on our other businesses, it totals about $82 million annually.

Non-ethanol operating income, as Todd said, is now running approximately $60 million per year. After accounting for the corporate S, G & A and depreciation expense from our non-ethanol segments we have, net, about $43 million in cash flow outside of ethanol production. So almost 55% of our debt service is covered before we consider cash flow from ethanol production.

On an annual basis that leaves about $39 million of debt service from ethanol production for about $0.05 per gallon. We’ve managed that number down from about $0.12 a few years ago. Our next layer of defense is our liquidity position which I just talked about. And of course we focus on maintaining a strong and open relationship with each of our lender groups.

We’re proud to have consistently made all payments on time, without exception. We value those business relationships and believe these firms are excellent partners with us. Turning to the balance sheet, we ended the quarter with solid liquidity, with total cash as of June 30 of nearly $137 million. About $51 million of which was at the parent company level.

In addition, we had nearly $162 million available under committed loan agreement at various subsidiaries. During the second quarter we repaid over $24 million of term debt, spent about $15.5 million dollars for capital expenditures and reduced the amounts outstanding under our working capital revolvers by $36 million.

Our net cash provided by operating activities was very strong during the quarter at over $52 million. As we mentioned in the release, we had build inventories during the first quarter, which were liquidated in the second quarter, which contributed to that strong operating cash flow. With over $60 million in debt repayments during the second quarter, our total consolidated debt now stands at approximately $679 million, of this $106 million is in short-term working capital debt used to finance inventories and receivables in our agribusiness and marketing and distribution segments.

As we discussed during our first quarter call these balances fluctuate significantly during the year and are supported directly by various current assets, such as grain inventories and trade receivables, of these businesses.

Ethanol plant debt at June 30 was $422 million or $0.57 per gallon compared to $482 million or $0.65 per gallon at the end of the second quarter of last year. We now have broken through $0.60 per gallon and by the end of the year we expect it will be lower again.

I know that was a fairly detailed discussion of our balance sheet and our liquidity position, but I wanted clear up any questions that may exist on these topics.

Turning to our financial results, consolidated revenues for the second quarter were $870 million, up 1% compared to second quarter of 2011. The revenue increase of $8.8 million was pRINsarily due to higher revenues in the corn oil production and agribusiness segments. We sold 38.6 million pounds of corn oil compared to 21.5 million pounds in the same period of 2011 and our agribusiness revenues increased primarily due to additional volume of grain sold and higher unit margins for grain and fertilizer.

Total ethanol marketed has increased by 29.5 million gallon or about 11.5%, and average realized ethanol prices were down 13% between the periods. As a reminder, we reduced production volumes at two of our ethanol plants by approximately 30%, or about 7% of total production capacity. As I mentioned earlier, we also built ethanol inventory heading into the second quarter as the market provided a reasonable return on storage capacity.

In the second quarter of 2012, that additional ethanol inventory was liquidated. We consumed 4.5 million bushels less corn in the ethanol production segments as a result of lower production levels in the quarter and improved yield versus the same period in 2011.

Our average cost per bushel for corn actually decreased by 8.7% in the second quarter of 2012 compared to the same period in 2011. Our gross profit for the second quarter was $18.1 million, which was down $17 million when compared to the second quarter of 2011, but that was $9.3 million better than the first quarter of 2012.

Operating income decreased $18.9 million in the second quarter of 2012 compared to the second quarter of 2011 as a result of the factors that I just discussed. We recorded an income tax benefit of $4.1 million compared to an income tax expense of $2.9 million for the second quarter 2012 versus 2011 respectively. As a result, we reported a net loss for the quarter of $7.6 million or a decrease of $12.5 million from the last year’s second quarter, but again it was a $5 million improvement over the loss reported in the first quarter of 2012.

EBITDA for the second quarter for 2012 totaled approximately $11.4 million. This is nearly a $10 million improvement over the first quarter of this year and on a trailing 12 month basis, EBITDA for the period ending June 30, 2012 was approximately $100 million.

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

Todd Becker

Thanks Jerry. So as we said we are on track to earn over $60 million of non-ethanol operating income which is even more from an EBITDA perspective. As Jerry reviewed with you, this will help cover a significant portion of our debt service. We often get asked why we carry such a large cash balance all the time. Well we strongly believe, for this business, it’s absolutely the right financial strategy. To put it very simply, in the second quarter we generated $11.4 million of EBITDA, a $9.8 million in interest and $24 million in principal on our term debt. Some of that principle was paid from our cash balances. As Jerry said, we still have a $137 million of cash, additional liquidity of a $161 million from loan agreements.

Finally, we still have an investment in our hedging program that can be available almost immediately as well, if we would ever need that liquidity, which we don’t today; that investment has ranged anywhere from $10 million to over $40 million over the last 12 months.

As far as growth opportunities, we continue to look both internally and externally for those. We’re adding grain storage at our Riga and Bluffton facilities. Both are getting 1 million bushel flat storage upgrades. This will allow us to gather more grain at local harvest levels.

We plan to build more of these in the future and increase grain storage capacities where makes sense at our plants. This does not take away from our continued strategy to grow our agribusiness segment. Construction of our 96 car unit train terminal at Birmingham, Alabama continues to be on schedule to generate revenue for us, beginning in the fourth quarter of this year.

We are very close to selling out the capacity of the terminal and we believe we can take this model to some of other BlendStar terminals. We are also looking at our Collins, Mississippi facility, and determining whether to upgrade that facility to a unit train receiver, which so far looks favorable.

BioProcess Algae’s expanded production facility or Phase 3, is due to be completed in the next 60 to 90 days. As you saw in June, BioProcess Algae entered into a commercial supply agreement for production of EPA-rich Omega-3 Oils for use in nutritional and/or pharmaceutical applications. The company continues to work on other agreements for products across other industries around food, feed, fuel and nutraceutical. We believe this is one of the first times a real product has been sold based of the carbon in a production plant anywhere in the United States.

The railcar program that we announced in our last call is fully underway. We now have over 500 cars fully deployed.

While you have seen a slight benefit in Q2, the real ramp up in earnings will be in Q3 and Q4 as they are all ll in service now. This is a combination of actual marketing and trading of crude oil in our cars, and leasing the rest of the cars out for the next 12 months. Car values are consistent with our last call and in some cases even stronger at over $3,000 per month market lease rates available in the market today. Our expectation as that this program will generate at least $12 million of operating income over the next 12 months.

One of the biggest topics in the U.S. today is the drought in the Corn Belt. While it is still hard to predict final yields, we know that they have continued to deteriorate. Along with this discussion, there is broad speculation on the impact to the Renewable Fuel Standard and calls for the government to scale back. The EPA and the USDA have said repeatedly, at this point, this is not on the table. Here’s how we see it and the reasons why they say this.

Ethanol today is still cheaper than gasoline.

The industry, according to yesterday’s data, is already scaling back production to 796,000 barrels per day or 12.2 billion gallon run rate. From the high of over 14 billion gallons, we are naturally rationing corn to the tune of 700 million bushels.

There are an estimated 3 billion gallons of RIN’s in the market which would allow the obligated party to not blend ethanol and use a RIN to fulfill their obligation. This is another 1 billion or so bushels of potential rationing.

The obligated party can roll forward 20% of their obligation to future years, or up to another 2.5 or so billion gallons. More corn from natural rationing.

The export market for corn is slowing down with these high prices and with available alternative feedstock in the world. In fact, today we saw negative corn export sales out of United States and the market is also looking at importing Brazilian corn as well.

Animal feeding is slowing down as well. Yet, there is still a 60 million ton supply of DDGs for that sector to use and our exports should slow with the high price of soymeal as a substitute.

With all of this said, there are no right or wrong answers now. We need to harvest this crop, determine the size, and let the market determine how to ration, if needed the corn crop.

Finally, in order for the EPA to lower the mandate, there are wavier procedures clearly spelled out in Section 211(o)(7) of the Clean Air Act. The EPA does not have the authority to arbitrarily waive the overall RFS based on speculation – I’m sorry EPA does not have the authority to arbitrarily waive the overall RFS based on speculation about the impacts of a short corn crop; rather, the statute dictates the process that the agency must follow to consider a waiver. In general, any petition seeking a waiver must establish unequivocally that implementation of the RFS would “severely harm the economy or the environment of a State, a region or the United States.” Further, EPA must offer public notice or opportunity for comment before making such waiver determination. The agency must also consult with the USDA and DOE.

From a Green Plains perspective, we analyze data daily to determine our production levels. To date, we have not slowed down anything other than announced levels. We expect to keep running our asset at this point, as all of our operational improvements combined with the growth in other operating income, has given us this ability.

If this changes, we will slow or shut down if that action is dictated. The mandate, exports, the need for octane and oxygenate for blending in our fuel supply and E15 slowly beginning and make its way into the marketplace, all stack up for solid demand for ethanol in the long term. The main question always looming is the octane dilemma. Replacement octane in large quantities is at least two times the cost of ethanol today. With every gallon decrease in ethanol supply, it starts to throw off the blend patterns in the U.S. With a larger percentage of refiners producing sub grade gasoline, there is an additional profit margin over the blend that is at risk for them if we don’t produce. We don’t have the answer to solve this, it will need to be watched very closely.

U.S. ethanol exports totaled 367 million gallons for the first five months of 2012, which leaves us to believe that we will export somewhere between 600 million and 800 million gallons in 2012.

To close, we always said to you that we would go through a period of a cyclical downturn. This has lasted a bit longer than our liking, but with what we have done in the fourth quarter we believe this will stabilize the overall last half of the year and allow us to look forward to 2013, with cash on the balance sheet and growing diversified company. I want to thank everybody for call in today.

Now, I will ask Melissa to start the question-and-answer session.

Question-and-Answer Session

Operator

Thank you. (Operator Instruction) And we will take our first question from Patrick Jobin from Credit Suisse.

Patrick Jobin – Credit Suisse

Hi, good morning. Thanks for taking the question.

Todd Becker

Hi Patrick.

Patrick Jobin – Credit Suisse

So, I guess just a follow-up Todd on the capacity outlook question, I guess what do you think the other operators are looking for to get to some sort of kind of decision-making process and what do you think production could level off at?

Todd Becker

So from the higher production at about 14.5 billion gallon run rate in the fourth quarter were down couple of 100,000 barrels a day almost to a 12.2 run rate which is a billion below the mandate. And we’re still exporting ethanol and stocks are coming down. So, I think ultimately it’s going to be a function of the market to tell us at what point is new margin stabilize and it will give up the market a margin to run. We’ve yet to see that from a marginal standpoint I mean we’re still running covering variable costs, but from the standpoint of the overall market we probably will see a little bit more production come out, ultimately start drawing from stock and seeing where we stabilized the margin structure well.

I can’t actually, I think this a two-year low on production and we’ll have to wait and see what next week brings. There are still shutdowns coming in the third quarter and I still think we will start it to feed into the stocks numbers, same thing kind of happened last year around this time and we saw the margins expand difference between this year and last year obviously is the price of corn and the volatility to corn corp.

So, I think we are still shutting or slowing production. I think the markets still telling the marginal producer to do that and we should continue to see these production numbers come down ultimately to a level where the stocks will start to get tight again. We’re starting to see stocks tighten up in certain small markets already, and some markets haven’t slight build but in general we’re starting to see it. Interestingly enough, it typically leads first in the physical market and then you start to see it in the financial market. I mean to give you an example we’re selling ethanol in Nebraska at higher than Chicago levels this week.

So, what we’ve seen is the impact, you haven’t seen it in the financial market yet, but the physical market is starting to take price adjustments already. Now we haven’t seen a dramatic change in the ethanol margin sector yet because of the ethanol market hasn’t kept up with corn, but you can see in a lot of markets they are trading at high – at very high historical index levels and that’s kind of the first move that you start to see in a margin structure improve, again hard to predict how fast or slow this is going to happen, but we’re starting to see some underlying things happen in the physical market.

Patrick Jobin – Credit Suisse

Great, that makes a lot of sense. And then also your comments, one kind of the policy outlook and what potentially the agencies have, they could or could not do. Then I guess, from your perspective, is there any policy measures that could be taken that would impact the ethanol dynamics?

Todd Becker

Yeah, I mean, I think the call for our best reductions have come from mainly the livestock groups so far, and we haven’t seen a broad call yet. I mean, I think people realize that there are safety measures in place that can be impacted long before you reduce your best, and it’s not ethanol that’s causing harm to the economy and it’s the drought that still yet to be seen if that actually causes significant harm.

What we really look at is the price of gasoline, and so I think that’s the big thing that markets are and those legislators in Washington really look at is, have we impacted the price of gasoline, which really truly does have a direct impact on the overall economy, and today the answer of that would be no, and so until we see kind of $0.25, $0.30, $0.40 increase in gasoline, because ethanol is so high priced, we don’t anticipate that, that you can prove any actual harm to the economy, so it’s going to have to have naturally, and so at that point we’ll have to wait and see.

Patrick Jobin – Credit Suisse

Make sense. And then just one last housekeeping question, and then I’ll jump back in the queue. Can you quantify the impact from the Railcar initiative in this quarter, and then also how many cars you expect to deploy to get to that $12 million number over the next 12 months?

Todd Becker

Yeah, the impact this quarter was small at round $750,000, but we expect it to be about a $1 million a month going forward and you’ll see that comes through marketing and distribution in the next 6 to 12 months, and they are deployed at this point and those numbers we believe are pretty solid.

Patrick Jobin – Credit Suisse

Great, thanks.

Todd Becker

Thank you.

Operator

And our next question will come from Farha Aslam from Stephens, Inc.

Farha Aslam – Stephens Inc

Hi, good morning.

Todd Becker

Morning, Farha.

Farha Aslam – Stephens Inc

Just first on your marketing and distribution segment. You have corn oil and you have crude oil revenues in there. Could you share with us color on kind of house corn oil and crude oils working into your marketing and distribution segment?

Jerry Peters

Sure, I will take that one. Corn oil – our corn oil production is sold similar to our ethanol production is sold entirely from our internal company to the marketing distribution segment, and though the base in the market that sells like corn oil. The crude oil activities relates to our rail car initiative. In some cases, we’re leasing cars and some cases we are directly buying the crude oil and selling the crude oil and so a portion of our revenues within the marketing distribution comes from that activity.

Farha Aslam – Stephens Inc

Okay. So, corn oil revenue in your market and distribution segment was only $5 m, but revenue out of your corn oil segment is more like $15 million. What’s the difference between the $10 million?

Jerry Peters

I think our total revenues – should be virtually identical.

Farha Aslam – Stephens Inc

Okay. So.

Jerry Peters

Because the pound sold was very nearly the same, but I think if you are looking at a $5 million number for marketing distribution, corn oil revenues that will be a misprint. It should be about $15.5 million for corn oil revenue.

Farha Aslam – Stephens Inc

So, it will be $15.5 million, and so that it should be 15.5 years or it shouldn’t be $5.1 million, it should be $15.1 million?

Jerry Peters

It should be $15.5 million.

Farha Aslam – Stephens Inc

So, it should be $15.5 million, not $5.1 million.

Jerry Peters

Correct.

Farha Aslam – Stephens Inc

Okay. That helps, clear enough because I was kind of confused. All right. And then Todd you had mentioned on your prepared remarks about where you think the RFS could have some adjustments, could you just kind of tailor those a little bit more in terms of year, if you look at 2012 versus 2013, the RFS this year is 13.2 billion gallons, so there’s 20% of that can be filled with RINs for this year, right?

Todd Becker

Yeah, when we.....

Farha Aslam – Stephens Inc

As the RINs available.

Todd Becker

Yeah, with RINs available, we don’t anticipate that anybody will – we don’t anticipate that the market will broadly fulfill their obligation for 2012 with RINs today because number one blending is still profitable. Ethanol is still available and then we will have to wait and see how the third quarter production rates will run, right. So, if we are only producing 12 to – and we are down to around 20 days of supply in the market, we will have to wait and see if RINs are used or if there is still positive blend margin. We still think there is a positive blend margin from an octane perspective as well as in some of the slots are still positive blend margin from just a blend perspective as well and then the question is can they ramp up from an 84 octane production level at most – at about – we think about 80% of the refiners, can they ramp up 87% I think quick enough and actually we don’t believe that they can’t, Steve.

Steve Bleyl

Right, you’re seeing the blend value right now, you still for the strip forward about 16 under gasoline right now off the boards, so the blend economics are still in place, and I probably think the bobs, the sub rates are probably run at 90% of the U.S. right now.

Todd Becker

So, it is very hard to say okay, in the fourth quarter we are not going to blend to the RFS and use RINs. So, that’s kind of – but the interesting thing about what’s happening right now if you kind take the U.S. corn situation, I want to take one second to comment on that, and I’ll comment on your 2013 question, if you don’t mind?

Farha Aslam – Stephens Inc

Okay.

Todd Becker

We are running at a 12.2 run rate right now, and the government has 5 billion bushels of corn for 2011, 2012 crop year. And in the last two months of the crop year we’re running at about 1.8 billion less than that, you’re generating 50 to 100 to 150 million extra corn, the corn balance sheet that you are not going to use and in kind of July and August in the crush, and so that’s not being really considered at all and building stocks – additional stocks for this year.

Farha, I think that’s pretty interesting, we are not having any trouble buying corn for August and even September values have come down as well. So, to give you context July was again defensive month, August actually turned out – and is turning out in general that we will be able to buy some cheaper corn and in general we saw some opportunities for a day or two or three around the crush and actually August was somewhat respectable from a crush perspective and we haven’t locked in very much in September yet, we are waiting to see what we do there. So, the quarter still yet to be played out, but we have – we are basically done for July and August fully, and September was still open.

From 2013, that’s kind of going to be the big question right. You’re not going to have any trouble buying corn, but there will be corn available in the fourth quarter then we get into the first, the next eight months and that’s kind of where the problem lies getting to new crop next year. And so the real question is number one what’s the crop and then how much of that crop has to get rationed in ethanol, so at 146 yield, the government kind of said, it will be at a 46 run rate. And so we take it down to 135 yield or lower or higher depending on where your beliefs are.

The real question is how much comes out of exports and how much comes out of ethanol, and so but even if you get down to $4 billion bushels that at 2.8, kind of 2.8 yield which is what we believe in, there is certainly an upper end to fulfill your obligation, you can roll forward some of your obligation and the market today is producing at basically about a 4-2 usage right now anyways. So we are already rationing this year and we already kind of on the run rate of rationing next year and then to use a little bit more, more of the RINs, you can get through the first eight months or nine months.

And as well as with some Brazilian imports as well, those are coming in as well, but those are kind of satisfying. So it will be an interesting time because, again the world is still buying our ethanol. It’s still profitable to blend. The biggest thing is where you’re going to get the octane.

So if you all are starting to kick ethanol out of the blend at 113 octane, I think that the least talked about thing in the market today and everybody can talk about on our best all they want, the least talked about is where are you going to get, where are you going to get octane today? And so spot and your cover octane is trading at 50 over our BOB and 70 over our BOB and ethanol is trading at 22 under or above. So I mean, you’ve got some issues around where you are going to get the octane before you stop blending ethanol and then there’s still a positive blend margin.

So, it’s really going to come down the next – first nine months of 2013 and RINs values have popped here legally, people are buying RINs in the market. There is a coated market, they trading – they traded at $0.06 yesterday and seven and so they are people that are buying that for protection or possibly don’t blend. Again these are all just part of the formula and it is hard to predict until we see a final crop number.

Farha Aslam – Stephens Inc

Okay, and my final questions, I’ll pass it on. You guys have talked about having adequate availability to make it through the fourth quarter, but in your just recent discussions here you said that it’s going to be tough for the next possibly eight months into the next year until we get to new crop next year. Are you talking to your banks and just increasing availability for Green Plains and talking about those covenants?

Todd Becker

Well, let me just comment first on the eight months to the next new crop. I think that’s a bit of a stretch yet, and we don’t know what the crop is, we are still producing ethanol. I think if the industry remains disciplined they can take ethanol production down and produce profitably at certain levels. So, I mean I don’t that you can actually say anything about the margin structure yet for 2013 until we kind of realize what our run rate is going to be as an industry and what the need for rationing is, if there is a need beyond kind of what I have talked about.

In terms of the discussion around the banks, I mean we’ve – and I’ll let Jerry talk about the banks, but again we again outline that over those nine months if we just run everything else running at a $60 million run rate on non-ethanol then how do you service your debt and we believe we’ll end the year with similar cash balances, if not potentially up from there because we have a lot of money invested in hedging programs today that we bring back liquidity on the balance sheet. So, we have a bunch of safety guard, safe measures, but Jerry, can you talk about those kind of discussions with the banks so far?

Jerry Peters

Yeah, we’ve been in constant contact with the banks and they are seeing it across all of their – all of their ethanol borrowers, now the tightness in covenants and the like and so we’ve fund through those discussions and keep them very well informed. Beyond that we are focused on a couple of financing initiatives over the coming six months to simplify some of our financing, in particular within our trade group we have a facility that we used to borrow against our receivables, but one thing that we are not doing is borrowing against our inventory. And so we’re working on freeing up some liquidity there just as additional cushion against long-term tough margins as well as additional ability to put hedges into place, to secure good margins.

Todd Becker

I think the key point, Farha, is that, what you see from a cash prospective, we have other leverage to pull the free liquidity up, and so – what we’re trying to manage our debt levels down, keeping our liquidity high with keeping other options around liquidity that we have in other places across our company. And so we have other levers to pull if we needed to, but at this point we don’t really need to do that. We liquidated our hedging program today.

We bring a lot of cash back onto the corporate balance sheet and we don’t feel today that’s the smartest thing to do, but as those hedges would liquidate that cash flows back in the corporate, it’s very expensive now with margin requirements to run a hedge program, and we continually monitor that to make sure that if we ever need that liquidity we can free it up within hours.

Farha Aslam – Stephens Inc

Okay, great. Thank you very much.

Todd Becker

Okay.

Operator

We will now move onto Craig Irwin with Wedbush Securities.

Craig Irwin – Wedbush Securities

Good morning, gentlemen.

Todd Becker

Good morning.

Craig Irwin – Wedbush Securities

Most of my questions have been answered already. One thing we haven’t discussed is BioProcess Algae. Could you maybe give us an update on overall progress there and the outlook for next steps as we look at the rest of the year?

Todd Becker

Yes. So we are fully under construction on the project we announced. We expect that we’ll phase in reactors on the total projects. We’re going to be able to phase in a couple phases of reactors in the next couple of months to start to fulfill our obligation under the high Omega or high value Omega-3 Oils that we have a supply agreement with. Those are full scale. We already are at full scale, we are actually just making it bigger, so there is going to be bigger scale reactors that are put in place today.

They are – we are building new processing capabilities as we speak; new dewatering, new drying, all of that is being done right now for a full scale plant that is coming. What our next steps after that is we’re in design and engineering phase with a EPC contractor on 50-acre modules even as low as 10-acre modules, but mostly 50-acre modules, that we can start to roll out as products gets to the market. The interesting thing is that while everybody hears about algae, there actually is not a lot of algae product in the market. Besides the couple of plants or the couple of companies that sell extremely refined oil at a very high price, there isn’t any kind of mid level priced oil in quantities and that’s why every time time we bring up more production, we get more interest from across the food and nutraceutical spectrum. So, we will bring these online.

We will fulfill our obligations. We have other that we are negotiating with right now in different levels of product development from big to small type companies and at that point, once we kind of get these five acres up and running, fully processing, hopefully making money, we will look at kind of the next step in Shen and/or Shenandoah or any of our other ethanol plants to say, okay, what’s the next size that we want to build?

And that could be 10 acres that could be 50 acres, but is all is a function of the demand that we can now create for product that we are developing. It’s much like when we think about it – we can think about it in a couple of ways, BioProcess Algae could build those on their own and raise capital to do that, either internal or externally.

We could actually treat it like a corn oil type investment and actually build those ourselves and pay a royalty on technology and have that profit flow through the Green Plains, which we believe relative to kind of cost of production and price of the end markets could be a very interesting opportunity for our shareholders, and all of this is coming out very rapidly. So, once the five acres come up the decision needs to be made on where and how to build the next projects and where that product is going to go and what price.

We believe that everything is holding on a scaling standpoint that we have outlined before. We believe we can compete all the way down in to kind of the fishmeal, fish oil market in the mid $1,500 or $2,000 a ton and still remain profitable against our production cost, and nothing is telling us yet to stop doing that, and I think that’s going to be something down the road, that’s a benefit for our shareholders as we continue to scale up.

Craig Irwin – Wedbush Securities

Excellent. Just another question that I had was – there are couple of themes that you hit on in this call. One is the issues around availability and the decisions that the blenders are going to make as far as the amount of ethanol they use in the backend of the year, and the good probability for lower quality producers to feel significant stress in this environment, if investors are asking questions about your liquidity.

I have to think that there are significant questions about a number of the smaller private producers out there…bring those two together and then looking at the book value of the stock, where are you trading on a enterprise value per gallon and where some of the historic transactions have happened in the market, would you entertain any potential approaches from other companies in the market, maybe you are looking to acquire Green Plains to take off some of the risk of ethanol availability in a very backend of the year?

Todd Becker

I mean, so when you kind of answer that question, some are things that really we can’t comment on, but, in general based on the current transactions for the last six months of good high quality financing at good locations, it will be very difficult for us to acquire ethanol plants at the prices that it would take because you can’t – you still can’t buy a really good ethanol plant at anywhere close to what our equity value is trading at.

They are much higher for good quality plants. And so when you kind of look at that, from that perspective, we have not been approached, but even if we are, we probably wouldn’t talk about it. I think we evaluate everything that we do every day and for our shareholders and make the determination what’s the best thing to do for them. At this point we are still running our business and we’ll continue to do so. If somebody approaches us to look at assets, we will obviously evaluate that approach, but at this point there is nothing we can comment on relative to that, but except to say that, we will do as best for our shareholders if we do get approached.

Craig Irwin – Wedbush Securities

Okay. And then last question, can you share with us if there any significant moving parts that are available to you continue reducing your overall cost structure improving your competitive position out there in the market?

Todd Becker

Yeah, we are evaluating expenses every day. We have to look at our plants expenses. We look at the expenses across the whole platform. The fine grind technology deployed at Shenandoah so far works great. We are seeing yield improvements there and hopefully you’ll start to see those through the overall platform. We are going to deploy it at second plant. We’re kind of going into our lowest yielding plant first and then from there we’ll look at if the effect will be in a higher yielding plant.

Interestingly enough, slowing down from our Delta Ts, which is what we slowed down has increased yield, pretty good. I mean we have – we actually have one plant right now yielding as high as 299 over the last couple of months, so that having kind of led the overall increase in our yield. We just continue to make breakthroughs all the time on running these plants cheaper, running them better, getting more out of the corn kernel, and if find grind gets us to that next level, it just makes us more competitive, and you can see that – we had – we continue to debottleneck our corn oil production as well with record yields this quarter. So, I mean, we are very focused on reducing cost, increasing profitability through getting more out of the corn kernel, we think that, that’s what we do very well.

Craig Irwin – Wedbush Securities

Thank you for taking my question.

Todd Becker

Thank you.

Operator

Our next question comes from Lawrence Alexander from Jefferies.

Lawrence Alexander – Jefferies

Good morning

Todd Becker

Hey Lawrence.

Lawrence Alexander – Jefferies

Couple of quick ones. I guess first of all, there was a question earlier just about some approaches for the firm, as you look at the components of the firm, some assets have gone for fairly high evaluations in recent transactions. Are there are any reasons with the way you’ve designed the operations that the components of the company are inseparable?

Todd Becker

There is no reason for that at all. We evaluate all of our components as an individual business as well as together in the enterprise. And we know that there have been high evaluations paid on grain assets as they are – there is a scarcity of supply in your legacy assets. And we will evaluate each of our businesses separately and if we can bring shareholder value through opportunity to one of those or more of those, monetizing those and we have to evaluate it, but at this point right now we’re basically keeping the whole program together.

You can see the benefit of that. We’re generating $60 million plus of non-ethanol operating income. Of all that together is through the components that we build along the value chain, but not to say that we see the value of our asset base relative to the value of our equity today even related to the value of our cash today and we are as frustrated as you are.

Lawrence Alexander – Jefferies

And then you mentioned several times ago the tradeoff between the various leverage you conflux to bring down the perceived debt ratios coupled with the growth opportunities that you still see in different business lines. What would need to change to trigger actually flexing some of those levers, I mean, with the Q4 outlook if you see that get push back would it be difficulty accessing, you getting physical access to corn. What would you need to say?

Todd Becker

First of all when you say leverage, the flex in our balance sheet isn’t necessarily leverage, it’s cash that we can free up through reducing our hedging programs and those type of things that we have invested our inventories or things like that. And so we can certainly flex some of those, if we saw a point somewhere on the curve that we needed to do that, but as we said kind of based on the – – what we’ve done in the last half, last quarter of the year on our hedging program and the overall last half of the year all of our analysis says we don’t need to that.

So, at this point there is not any need to really go after that liquidity and hit those levers first nine months of the year, I mean even if you look at that I mean there is more leverage to flex. I mean even in our calculation of shutting down a plant, we can look at redeploying those cars in different ways to help soften the impact of slowing production. Interesting thing though is that if I could shut down a plant, I would, but I can’t because I haven’t been able to yet based on everything we’ve been able to do and the margin structure we’ve been able to kind of lock in for July and August and waiting for September and then the fourth quarter. So, our improvements we’ve made have driven us our ability to still far withstand the cyclical down that we’ve been facing here for the last six months, six or seven months.

Lawrence Alexander – Jefferies

And then looking at the algae platform, can you give us a sense for – and again very just rough, if the omega 3, if your entire five acres were producing for the omega 3 product line, what roughly the free cash flow per acre might be or the EBITDA per acre?

Todd Becker

We haven’t given that out, probably a little early to talk about that. High value omega 3 oils are at a price point where we believe on a per acre production and actually including all the start ups and you got to build the processing plant all that, but just from a acre production, when you look at that would be profitable, but you still have – you are still investing in your grow out. So I don’t know that there is going to generate a bunch of free cash, necessarily that pulls out of there right away, but you’re still investing into technology grow out. So, but I would tell you that by doing that contract, we are at base cost of production and the contract cost is a profitable contract, but you have other factors in play you probably won’t see that for a little while.

Lawrence Alexander – Jefferies

And then lastly, I think one point you had mentioned going out to other industrial groups, refiners or what not, we have CO2 production and trying to explore whether or not they might want to test and evaluate rolling out the same platform on their end doing some sort of licensing model. Can you give us a sense for how that’s progressed or is that solidified?

Todd Becker

Yeah, I mean we’re still in discussion with everybody from kind of refining through electrical generation type plant and any, anybody has the CO2 source and what we were showing is that you can monetize the CO2 source hopefully through a larger scale algae production facility just using CO2 warm water even the sun without sugars. That’s what very different about our platform is that we don’t have a cost of sugar which is something very unique about what we do.

We are growing on a per acre basis very competitively. So we’re in discussion I can tell you with multiple groups either users of the product to meters of carbon and anybody and everybody and between that and our focus really remains the same. So, from that standpoint I don’t think anything changes. I think what we are going to be able to prove out with this contract is that you can mitigate carbon, put into a process, and generate a return on that carbon which is really the last third of the corn kernel that we’ve been focusing on.

Lawrence Alexander – Jefferies

Thank you.

Todd Becker

Thanks Morris.

Operator

The next question will come from Matt Farwell from Imperial Capital.

Matt Farwell – Imperial Capital

Hi, good morning. I just wanted to talk about two things that you’ve discussed already, one is the octane and the other is the RFS. It seems like these are sources of demand or support for ethanol, but it is sounding like the octane floor is probably more relevant in 2013. You said that your RFS has some inflexibility and obligated parties can roll their RFS obligations for years. I guess can you comment on what is the more relevant demand floor and in addition, can you comment on whether or not the EPA is likely to hand down any signs for noncompliance as they did with biodiesel mandates, or do you think that the EPA will might be more flexible next year?

Todd Becker

Steve will talk about on the octane and I will talk on the RFS.

Steve Bleyl

Sure. I will talk a little bit on it, Matt. One of the things, Todd referenced earlier was some of the octane values out there and we track and look at the accolades and reformates and what they do for in comparison to the ethanol piece and you are looking at New York Harbor type values, they are 50 over gas on those and 70 over on the other piece whereas ethanol right now on the board is still trading about 2,200 in the far. So, the octane side it’s a huge value to it now, there is a percentage of, could they displace it?

The way we look at it is, it takes a refiner 90 days to switch from a sub-grade gasoline production to a conventional gasoline production value, so they could go to an 87 octane versus to sub-grade, but it will take 90 days to clear that, but again, the ethanol piece will have to go well over – I’m sorry, the ethanol piece have to well over the gasoline piece before they probably implement that.

Todd Becker

For a longer period of time.

Steve Bleyl

For a longer period, correct, and we’re seeing though these we’re still running on that strip. We’re still underneath the gasoline values as ethanol.

Todd Becker

So then from our best standpoint, we kind of went through most of that, non-compliance, I don’t think there is anybody that, is that risk of non-compliance at this point, there is enough RINs out there, there is enough roll forward out there, I think from that standpoint, so the non-compliance issue is kind of off the table right at this point.

Matt Farwell – Imperial Capital

It is my understanding that a lot of the – well I guess, you mentioned roll forward, my understanding was the lot of the RINs would expire this year, and I don’t think any banked RINs from prior years, then it would really just be the capability or refiners or obligate parties to roll forward their obligation into a future year, which is actually to contender additional demand in the future years. Does that make any sense or am I interpreting the RFS incorrectly?

Todd Becker

I’ll talk about roll forward RINs.

Steve Bleyl

I think you start to see in roll out of certain RINs, as you start buying up to 2013 now is that, that’s their coverage for it. So, I think you are seeing that now as they roll out 2012 into 2013.

Todd Becker

But come 2012, 20% of the 2012 will roll forward to 2013.

Steve Bleyl

20% could roll forward, correct.

Matt Farwell – Imperial Capital

I see. Okay. Thank you very much.

Todd Becker

Thank you.

Operator

Our next question comes from Ian Horowitz from Topeka Capital.

Ian Horowitz – Topeka Capital

Good morning, Guys.

Todd Becker

Hi, Ian.

Ian Horowitz – Topeka Capital

Couple of quick questions. First of all, can you kind of talk a lilt bit about we’re lowering our days of inventory from an industry standpoint. What point does the market get tight relative to demand?

Todd Becker

We’re starting to see it already in some markets as we said Nebraska is trading – we are trading Nebraska over Chicago where typically trades kind of 10 or 11 under Chicago market. So, we are starting to see certain regional markets tightened up. Steve, you want to comment on other markets that you’ve seen and then we kind of...

Steve Bleyl

It’s not – it’s certain markets where you know these plants going down for extended maintenance or you’ll start to see plants that have closed up completely and you will start to see people scramble looking for barrels some is out east, some is out west and it’s not one specific market. It’s where, it’s been ineffective, I mean, some of the delivery markets are getting tight because there is not that much going to right now.

Todd Becker

And I will wait and see next week if we continue to at least maintain this production pace. You should see another stocks draw overall and you start to get down the levels last year. We’re starting to see you get down levels inventory levels last year when margins started to pop. Again, we are more corn relative to this year than last year. So, that’s the thing that we are dealing.

Steve Bleyl

But one thing that you mentioned earlier, this is the lowest level production since they started reporting ethanol.

Todd Becker

Right.

Ian Horowitz – Topeka Capital

But how many days that stocks do, is that kind of high teens?

Steve Bleyl

Yeah, sub 20 you start seeing...

Todd Becker

We’ve always said kind of 16 day to 18 day stock is a very tight market.

Ian Horowitz – Topeka Capital

Very tight.

Todd Becker

Where you start to see – where you start to see dislocations happen and already we’re starting to see dislocations happen. When you trade Nebraska at over Chicago values you are trading Indiana at the same type of levels you basically have almost equalized the United States and so dislocation is already starting to happen, but has not translated yet into kind of stabilized the ethanol flat price, because there seems to be a lot of sellers in the ethanol market and are maybe have written up there, there long to be type of levels and are putting it out every day, but in general this dislocation could to start have an effect.

Ian Horowitz – Topeka Capital

Okay. And then a lot of stuff is going on with regards to the feed markets both from a supply and a demand side, can you comment at all on correlation between DDG and corn where it’s been recently and kind of if you have any kind of view over the next set of time here and how this is all going to play out?

Todd Becker

That’s a good question because we don’t talk about that a lot when your typical historical DDG prices of grain kind of 70% to 80% price of corn.

Ian Horowitz – Topeka Capital

Right.

Todd Becker

And as of the lower corn markets, when we get to the higher-corn market, it starts to push up to the higher levels of a ratio and actually we freighted some stuff 100% the price of corn and it’s really just a function of rationing or kind of how the whole process is when you look at your feed rationing. I would tell you from cattle feeders that we know they can continue to pay over the price of corn for DDGs and get a better benefit.

We start to hit these levels of kind of poultry and hogs they can kind of do the split and go back to corn if they wanted to, but the big problem right now is up historically high soy bean mill prices and so the substitutes are all kind of playing in from that prospective, but from a cattle perspective they continue to take the product at a 100% price of corn. We’ve not seen any slowdown, because corn obviously is one of the worries as well.

So here again then you have another dilemma facing you which is reduced ethanol production, reduces DDG production then where do you get the alternative feedstock for that as well? So, this is going to all have to be very interesting the way this thing plays out, but at this point we are starting to see very strong conversion values for distillers grains, and I don’t think the feed market stay once those distiller grains to go away.

The one – again there are safety measures in everything we talk about is that we are still exporting distiller grains for with even the latest kind of cancellations of exports out of the United States of corn, and I think distillers in the world are probably high price – high enough priced, anyway you start to see some of that backup, which then gives a bit of a safety net for some corn in the feed and residual numbers.

Ian Horowitz – Topeka Capital

Got it. You also talked – Todd you mentioned Q3 as being defensive and then Q4 profitability, just a little bit of clarity around that. You – for Q4, that would be for the entire quarter or moving towards profitability and then for Q3, defensive I think we can all kind of look out and see the challenges that the industry is facing, but do you expect it to be kind of moving in that – in the right direction, are we going to see something bit of an improvement like we did 2Q over 1Q or is it too early to tell?

Todd Becker

It really comes down the kind of where stuff settles out at, kind of tracking. We haven’t really commented on where we are tracking, expect that it is still remaining defensive, It’s not too kind of Q1 levels, defensive, so we can kind of comment on that. But we are going to have to wait and see where how we finish the Q3 out.

When we make our comments on Q4, so that’s kind of last 12 to 14 weeks based on what we are able to hedge earlier in the year, hedge remain profitable for the whole quarter even with volatility in the forward curve, and when we say we locked away the margin structure, we fully locked away the margin structure and we have corn bought against it. We have our financials all locked away, and so, it’s a little bit different than last year.

So, those numbers have held over the last 12 weeks to 14 weeks that we see a serious degradation in the margin structure in Q4 that could change, but at this point even as late as last night we are still profitable in Q4. So, we’ll have to wait and see. We also think they are kind of the two cores together, potentially make us very neutral for the last half of the year and especially from a cash perspective, that’s what we really we look at.

I mean, the earnings – we’re dealing with the volatility of the earnings, but we want to make sure from a liquidity perspective as we get to the last half of – the last day of the year; number one we have net liquidity on the balance sheet, cash balances should be somewhat similar. We have other leverage to pull if we need to get more cash without higher debt levels, and we certainly are watching that, but at this point again based on our prediction and again as you know with P&L our business every single day, so we watch it very closely based on those predictions right now to pretty neutral last half.

Ian Horowitz – Topeka Capital

Great. And then one last question. If you look at the first six months of 2012 versus 2011, it looks like fertilizer volumes were down fairly significantly and comes as a bit of surprises as we are putting more acres to work, and – should be seeing linear increases in demand. Can you talk a little bit about what happened in that segment?

Jerry Peters

Hey, I’ll take that one. Actually that was a management decision sometime ago to be more disciplined in our overall approach to fertilizer sales; we didn’t reach for that last little bit of sales that we can make even if it was pretty tight on margins. So, we got very disciplined in our approach. As you saw on the release, lost a little bit of volumes, but overall increased profitability as a result.

Ian Horowitz – Topeka Capital

Even on a per ton basis, a better result than the first-half of the 2011?

Todd Becker

Yeah, last kind of 5,000 tons was typically sold wholesale. We have to another distributor. So, we are doing just volume for the sake of volume in the low margin and we say, we are not going to do that this year. We will just trade the high value customers, sell the high value customers and just earn in the margin without degrading the overall quality.

Ian Horowitz – Topeka Capital

So, Jerry are we going to look at a similar decline in second-half of 2012 from a volume standpoint?

Jerry Peters

Yeah, I would expect about the same. Some of that does depend on the weather as well. Last fall, we had a very warm – a very warm fall. So, we might have had a little bit more application going on in the fall than what we would normally have.

Todd Becker

Yeah, it depends on the kind of very we sell the retail versus the wholesale and so, most of our retail is down in the spring, – most of the wholesale we did in the past in the spring and fall is still really before retail season, so normally you will see quite a drop.

Ian Horowitz – Topeka Capital

Okay, great. Thank you.

Todd Becker

Thanks Ian.

Operator

And next we will go to Brett Wong from Piper Jaffray.

Brett Wong – Piper Jaffray

Hi, good morning. Just wondering your outlook on the E15?

Todd Becker

Yeah, so it’s slower than we would like, but we are making progress. E15 is in multiple stages of rollout, has multiple retailers that we are seeing. Big thing that happened yesterday was one of the pump manufacturers came out with a UL approved E25 retrofit the pumps, that is a game changer from the prospective of, now can retrofit your pumps for about $1,800 what it is to pump E15 through an E10 holes, is that correct Steve?

Steve Bleyl

Correct.

Todd Becker

So, that was really a bottleneck for rollout of E15 from a retail level and we’re thinking and we are hearing the other pump manufacturers not that far behind, from rolling out a retrofit kit as well. So, instead of costing your $10,000 or $20,000 or $30,000 putting new pumps in they come with a solution for the retailer that could be kind of a game changer needed that if the retailer wants to start to roll E15 out, that is a pretty big deal.

We are in process right now at all of our pumps rolling out throughout all E15 across our small amount of stations that we own up in Northwest Iowa and pumps that we have. So, we’re in deep into that process as well. There is E15 being pumped through blender pumps in the U.S. today and I think that there is one station right now that is pumping E15. Our goal is to pump E15 through E10 pumps and completely eliminate E10 in the marketplace.

But again the game changer is I think this retrofit hit yesterday it is a very big deal and I think ultimately it comes down to economics and then from there available feed stock supply, so you can have the right gasoline supply to blend with ethanol if we get the E15. So, it has been a process. It’s still fully being, being deployed and 4 million miles on E15, and love the fuel, I don’t think there’s any test better than that, it’s just going to take longer than expected, but ultimately we see that is, it’s one of the fewer choices for the consumer.

Brett Wong – Piper Jaffray

Great. Thanks.

Todd Becker

Okay. Thank you.

Operator

And that is all the time we have for questions today. At this time, I’d like to turn the call back over to Todd Becker for any closing comments.

Todd Becker

Thanks a lot for calling in today. Obviously a lot of questions. Hopefully we’ve answered some of your concerns about the future of Green Plains. We think we are in good solid position from a liquidity standpoint. We are in full compliance and servicing all of our debt today. We are continuing to build out other pieces of our business with non-ethanol operating income and as you can see we’re making great strides in getting over $60 million a year non-ethanol operating income really from a few years ago when it was very minimal.

And if we continue to de-risk the ethanol segment for you, we’re not happy with valuation today which is below our cash balances from an equity standpoint. We still believe in the platform that we’re building. We still believe in the future of our company. We are going to have to deal obviously with some stress in the U.S. corn crop this year but we think we’re well positioned to get through that and get ourselves into 2013. So thanks for calling today. If you have any other questions feel free to call us and we appreciate your support. Thank you.

Operator

And that does conclude our conference for today. Thank you for your participation. You may now disconnect.

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