Archer-Daniels-Midland Co (ADM) 2003 Q4 法說會逐字稿

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  • Operator

  • Good day, ladies and gentlemen, and welcome to the Archer Daniels Midland fourth earnings call.

  • At this time, all participants are in a listen-only mode.

  • Later, we will conduct a question and answer session, and instructions will follow at that time.

  • As a reminder, this conference call is being recorded.

  • I would now like to turn the conference over to your host, Chairman and Chief Executive Officer of Archer Daniels Midland, Mr. Allen Andreas.

  • Please go ahead, sir.

  • Allen Andreas - Chairman and CEO

  • Thank you very much, and good morning to all of you.

  • Welcome to Archer Daniels Midland Company’s analyst conference call for the quarter ending June 30th, which is our fourth quarter, and also then the end of our fiscal year for 2003.

  • We're first going to have a presentation by Doug Schmalz, our Chief Financial Officer, of the results of this past quarter and fiscal year.

  • That will be followed by Brian Peterson, who will bring us up to date on the various developments in a variety of different businesses, and then we'll open the session to questions to any of you that might have matters that are of concern.

  • Doug, would you please begin with the numbers?

  • Doug Schmalz - CFO

  • Thanks, Al.

  • Good morning, everyone.

  • I just want to state that today's comments reflect management's current views and estimates of future economic circumstances, industry conditions, company performance and financial results.

  • Any changes in such assumptions or factors, such as oilseed crush margins, ethanol prices or crop values, could produce significantly different results, and we assume no obligation to update forward-looking statements as a result of new information or future events.

  • As you perhaps see in our earnings release for the quarter ended June 30th, 2003, there were $95,020,000, or 15 cents a share.

  • That compared to net earnings last year of $112,266,000, or 17 cents a share.

  • The current year's fourth quarter includes losses on abandonment and write-downs of long-lived assets of $13 million, that was $8 million after tax, or one cent a share, and also gains from security transactions of $5 million, which was $3 million after tax, which was less than a penny a share.

  • Our last year's fourth quarter included a gain from partial settlement from an antitrust litigation of $93 million, $58 million after tax or nine cents a share, also gains from security transactions of $1 million after tax, which was less than a penny a share.

  • There was a tax credit of $26 million, or four cents a share, and a charge of $83 million, which was $51 million after tax or eight cents a share for abandonment and write-down of long life plant assets.

  • Comparing earnings of the quarter, adjusted for these non-recurring items, our earnings increased 30% to $100 million or 16 cents a share, compared to $78 million, or 12 cents a share last year.

  • For the full year, our earnings were $451 million or 70 cents a share, compared to net earnings last year of $511 million or 78 cents a share.

  • This fiscal year of 2003 included losses and abandonment and write-downs of long-lived plant assets of $13 million, $8 million after tax or one cent a share, and had gains of security transactions of $3 million, $2 million after tax, which was less than a penny a share, and a gain of $28 million, $17 million after tax, or three cents a share related to partial settlement of the company’s claims related to vitamin antitrust litigation.

  • Our fiscal year 2002 results included a gain from partial settlement of the vitamin antitrust litigation of $147 million, which was $91 million after tax or 14 cents a share.

  • We had gains of security transactions of $38 million, which was $24 million after tax or four cents a share.

  • There was a tax credit of $26 million, which was four cents a share, and a charge of $83 million, which was $51 million after tax or eight cents a share for the abandonment and write-down of long-lived assets.

  • Earnings for the fiscal year, comparative adjusted for these non-recurring items increased 5% to $440 million or 68 cents a share, compared to $421 million or 64 cents a share last year.

  • Our fourth quarter average shares outstanding declined about 1% to 645 million, compared to 651 million average shares last year's fourth quarter, and for our full fiscal year our average shares declined 2% to 646 million.

  • For the quarter, our net sales and other operating income increased 19% to $8 billion due primarily to higher commodity volume and price levels, and to a lesser extent sales of recently acquired flour and corn milling businesses.

  • Our gross profits increased 6% to $402 million due principally to the improved operating results of our corn processing, cocoa processing, and bioproducts processing segments, partially offset by lower operating results of the agricultural services and citric acid processing operations.

  • Our segment operating profit for the quarter increased $7 million to $230 million, compared to $223 million a year ago for the quarter.

  • Excluding the fourth quarter impacts of the vitamin litigation settlement gains which were $93 million in 2002, and the charges for abandonment and write downs of long-lived assets of $13 million in 2003, and $83 million in 2002, our segment operating profits for the quarter increased $30 million or 14% to $243 million from $213 million in last year's fourth quarter.

  • Our oilseed processing fourth quarter results of $83 million in fiscal '03, compared to $64 million in fiscal ‘02, included charges for abandonment and write downs of long-lived assets of $7 million in 2003 and $23 million in 2002.

  • Excluding these charges, our oilseed profits fourth quarter results increased to $90 million from $87 million last year.

  • Results of our Asian, South American and North American operations improved over prior year levels, but these improvements were partially offset by a decline in our European operating results.

  • Corn processing fourth quarter results of $82 million in fiscal ‘03, compared to $49 million in fiscal ’02, include charges for abandonment and write-down of long-lived assets of $10 million in the fourth quarter of fiscal ‘02.

  • Excluding that charge from the quarter, the corn processing results improved to $82 million from $59 million last year.

  • That improvement was due primary to increased sales volumes and higher average selling prices of both ethanol and sweetener products, partially offset by increased net corn costs.

  • Our wheat processing fourth quarter results of $14 million in fiscal ‘03, compared to $6 million in fiscal ‘02 also included charges of abandonment and write-downs of long-lived assets of $6 million in the fourth quarter of ‘02.

  • Excluding that charge for the quarter, our wheat processing results improved to the $14 million ‘03 level from $12 million last year, due to improved volumes in the North American operations.

  • However, the drought-related short crop in the United States and Canada, and related poor wheat quality continue to result in reduced run rates and reduced yields, negatively impacting our flour processing margins in the U.S. and Canada.

  • Agricultural services fourth quarter results declined to $14 million in fiscal ‘03 from $42 million in fiscal ‘02 as our global grain origination and marketing continued to suffer during the quarter.

  • Difficult crop conditions in the United States and Canada due to last year's drought conditions resulted in short crops leading to lower volumes and margins for both transportation and origination operations.

  • Our origination operations in the drought areas have also suffered, as reduced crop size negatively impact our storage and handling revenues.

  • Also, higher fuel costs contributed to difficult operating conditions for the barge transportation operations.

  • Our other fourth quarter results of $38 million in fiscal ‘03, compared to $62 million in fiscal ‘02, included charges for abandonment and write downs of long-lived assets of $6 million in fiscal ’03. $44 million in fiscal ‘02.

  • In addition, last year's fourth quarter included gains from partial settlement of vitamin antitrust litigation of $93 million.

  • Excluding those gains and charges, the results of our other segment for the quarter improved to $44 million from fiscal ‘03 from $13 million last year, due primarily to the improvements in the company’s cocoa and bioproducts operations, partially offset by poor operating conditions in citric acid.

  • Our corporate operations improved results as good demand for butter and powder resulted in improved margins from sales volume and selling price increases.

  • Our bioproduct results also improved as better lysine demand resulted in improved sales volume and prices.

  • These gains were partially offset by the poor operating results of citric acid.

  • For the quarter, our citric acid processing plant in Ireland was temporarily shut down and sales volumes and selling prices continued to decline due to the industry overcapacity situation.

  • Corporate costs reflected in the segment summary decreased $6 million to $97 million from $104 million last year due principally to a reduction in our European lysine litigation accrual.

  • Our company-wide SG&A costs increased $21 million to $254 million for the quarter.

  • The increase included $6 million of costs related to recently acquired flour and corn milling operations, plus general corporate cost increases.

  • Our interest expense increased $4 million to $87 million for the quarter, reflecting average higher borrowing levels and also was partially offset by lower interest rates.

  • Our investment income also increased $2 million to $29 million for the quarter.

  • I mentioned earlier our gains from security transactions were $5 million in the fourth quarter of fiscal ’03, compared to $1 million last year.

  • Equity and earnings affiliates for the quarter increased $11 million to $36 million for the quarter, reflecting improved results of company’s domestic peanut and also the Asian oilseed investments.

  • Our effective tax rate for the current fiscal year was 28.5%.

  • Excluding the effect of the special tax credit of $26 million recorded in last year's fourth quarter upon the resolution of various state and federal outstanding tax issues, the comparable effective rate for fiscal ’02 was 32.5%.

  • If we included the special tax rate, our effective rate last year was 28.9%.

  • The decrease in the 2003 effective rates reflects increased tax benefits which we realized from foreign tax planning initiatives which were implemented at the beginning of the current fiscal year, and also the impact of no goodwill and amortization in fiscal 2003.

  • We're still in the process of finalizing our balance sheet and cash flow items, but we estimate that our total flow from operations, which is earnings plus depreciation and amortization, will be approximately $1.1 billion.

  • Our uses of cash include capital expenditures, [inaudible] approximately $425 million.

  • We anticipate our acquisition numbers to be about $530 million, repurchase of company stock were approximately $100 million, and we’ll have dividends of approximately $150 million.

  • Those are financed from our cash flows from operations and also, if you recall, in October of fiscal ’03, we issued an additional $500 million of 30-year debentures at a cost slightly under 6%.

  • With that, I'll turn it over to Brian Peterson, who will take you through some of the current matters in each of our operating segments.

  • Brian Peterson - Senior VP of Corporate Affairs

  • Thank you, Doug.

  • Good morning, everyone.

  • Starting with the oilseed sector, profits were up for the quarter on strong results in South America, Asia and improved results in North America.

  • European results were down for the quarter.

  • The processing industry faces the following situation going forward.

  • The soybean supply will remain tight until the North American new crop is harvested.

  • Animal production economics are expected to improve on lower feed costs this fall.

  • Consequently demand for meal should improve.

  • The Chinese demand is steady, but the projected soybean crop is more than sufficient to meet this demand, and the projected large crop next year will keep the pressure on soybean prices during the year.

  • ADM has an excellent balance of soybean origination and processing across North America, South America, Europe and Asia.

  • We know soybean production will grow in South America, and we recently announced we are adding five grain origination and storage silos in Brazil.

  • The new grain silos will be operational by the new crop, 2004.

  • Our processing capacity in South America will also grow as our [inaudible] expansion comes online in early calendar year 2004.

  • Protein meal and oil demand is growing faster in Asia than in any other part of the world.

  • We grew our processing capacity with our joint venture partners in China from 10,000 tons a day in 2002 to 22,000 tons per day in 2003.

  • Our current expansions in China will bring our capacity to 37,000 tons per day by the year 2005.

  • We see good demand for vegetable oil today, and we believe we are well-positioned to meet the increasing global demand for protein meal.

  • Switching over to corn processing, where we had improved profits from both sweeteners and ethanol.

  • In sweeteners, the increased profits are due to higher prices, the benefits of integrating the MCB sweetener operations into our network, and efficiency improvements in our corn processing operations.

  • Our net corn costs are up slightly from last year.

  • In ethanol, profits were up for the quarter on higher prices and volumes.

  • Current prices for ethanol are down a bit from last quarter, but we continue to see good profits in this sector.

  • The demand in California continues to grow, as refiners replace MTBE.

  • Currently this market is about 75% converted to ethanol.

  • As the California refineries – California market completes the conversion to ethanol, annual demand will grow another 200 million to 250 million gallons per year.

  • The next large MTBE replacement market is the New York and Connecticut market.

  • Current regulations require switching away from MTBE by January 2004.

  • This market would consume an additional 400 million to 475 million gallons of ethanol per year.

  • The refiners are making their implementation plans now, and we have already started signing supply contracts for this market.

  • ADM is well-positioned for the East Coast market with seven terminals on the East Coast, rail delivery capabilities, and Gulf Coast shipping capability.

  • The growth in the industry ethanol capacity has kept pace with the growing demand and current inventories are sufficient to implement a smooth transition.

  • In Washington, the House has passed an energy bill, as you know, with a renewable fuels provision, and the Senate has passed a renewable fuel standard section of their energy bill.

  • The bills have similar provisions with regard to the implementation of a renewable fuel standard.

  • The Senate is expected to pass their energy bill this fall, at which point these two bills would go to the House/Senate conference committee to finalize the bill for the President's signature.

  • Additionally in the corn sector, we have several projects under review that would use our fermentation capabilities to expand our product lines and increase the value of our start stream.

  • We continue to search for ways in our fermentation operation to increase the value of our start stream and the profitability of our corn processing operations.

  • In wheat, as Doug mentioned, the poor quality wheat that adversely affected flour mills in fiscal 2003 is nearly gone and we are now processing this year's winter wheat crop.

  • The U.S. food program purchases of flour for Iraq benefited capacity utilization this past quarter, which was 85% or up from 80% in the previous quarter.

  • Government data, however, shows that the U.S. per capita consumption per flour is down for the second year in a row, so we expect a continuation of the challenging industry conditions.

  • We are integrating our ABF flour mills in the UK, and expect to realize synergies in administration and distribution costs.

  • We will be consolidating our manufacturing in the U.K. and expect to find substantial saving in transportation.

  • In agricultural services, results continue to suffer from the continuing effects of the short harvest in North America.

  • As mentioned for the last two quarters, short drops negatively impact both transportation and grain origination results.

  • Storage and shipping volumes were both weakened in the quarter.

  • The barge shipping business is starting to improve, as evidenced by higher barge freight rates.

  • The capacity of the river transportation industry will be more heavily utilized as we handle a large U.S. harvest this fall.

  • If early indications are at all accurate, we expect a very good U.S. crop across-the-board, which should bring our ag services profits back to more normal levels this fall.

  • We will continue to struggle here, however, until harvest time.

  • In the other sector, I'd like to comment on several parts of that sector, where we saw improved operating results, primary from cocoa and bioproducts.

  • Our cocoa operations delivered strong results as the fundamentals of this business improved versus last year due to consolidation and our growth in semifinished and finished product sales to our chocolate customers.

  • Our chocolate sales and profits were up, and we continue to pursue opportunities to use our processing expertise to move closer to the consumers and to provide additional value to our chocolate customers.

  • Butter demand has been strong, powder demand is also solid and processing margins are good in the cocoa business.

  • In bioproducts, profits improved versus last year on record volumes and higher selling prices.

  • Lysine prices are steady currently and the demand should grow as corn ethanol plants come online and sell increased volumes of distilled or dry grain, which require supplementation with lysine to enhance their nutritional value.

  • Citric acid world market volumes continue to grow, but the results remain unacceptable.

  • We have increased prices and taken steps to reduce our cost structure to stem our losses in this business.

  • The industry has also been struggling and is going through a consolidation.

  • A recent article in Chemical Marketing Reporter indicated that the spot prices in citric acid have recently risen by 6-10% and future prospects for the industry are improving.

  • Switching to health and nutrition, our retail test marketing of our technologically advanced and innovative vegetable oil, NovaLipid, is well under way.

  • A test market in Atlanta has recently started.

  • While it will take several months to determine the success of this test marketing, we are encouraged by the results to date.

  • We announced the NovaLipid line of zero- and reduced-trans fat vegetable oils at the recent international food technology conference.

  • ADM is the largest producer of vegetable oils in the world and we are well-positioned to support the needs of our customers as they evaluate their offerings in light of the proposed trans fat labeling requirements.

  • That concludes my comments.

  • Thank you.

  • If you have questions, we're prepared to take them at this time.

  • Operator

  • Ladies and gentlemen, if you do have a question at this time, press the 1 key on your touchtone telephone.

  • If your question has been answered, or you wish to remove yourself from the queue, please press the pound key.

  • Once again, if you do have a question at this time, press the 1 key now.

  • One moment for questions.

  • The first question is from the line of David Driscoll.

  • Please go ahead.

  • David Driscoll - Analyst

  • Thank you.

  • Good morning, everyone.

  • Allen Andreas - Chairman and CEO

  • Good morning, David.

  • David Driscoll - Analyst

  • I wanted to ask you about this soybean business.

  • The crush margins on a year-over-year comparison just from the Chicago Board of Trade, they were down substantially.

  • According to my calculations, they’re down about 27%, the fiscal fourth quarter versus the previous year fiscal fourth quarter.

  • However, the operating results were in fact only down about $4.8 million.

  • This result is -- It looks very good to me in light of that statistic I just gave you.

  • Can you give us a little color on what's going on in that division, and how did you seemingly buck the trend that looked rather negative?

  • Brian Peterson - Senior VP of Corporate Affairs

  • Well, the first point to make of course, is that the board margins, although they're an indicator of the health industry, they're not the total picture.

  • We've had good results in origination, good results in selling our products to our customers.

  • I think they have also worked on eliminating costs from our operation, and I think you'll also notice that we have reduced – or have announced plant shutdowns in some instances, trying to more effectively utilize our capacity in a more efficient way.

  • I think this has brought enhanced results or at least allowed us to deliver better than expected results, given the overall health of the industry.

  • David Driscoll - Analyst

  • Do you expect the results to improve from here?

  • Brian Peterson - Senior VP of Corporate Affairs

  • Most definitely.

  • As we move forward into new crops, we think the prospects are really quite favorable.

  • If you look, however, at the balance of this crop year in North America, we're going to continue to face a very tight crop situation, and processing margins until we get to new crop will remain under pressure.

  • However, I think that, as I mentioned before, we continue to try to find the most efficient mix for our processing capabilities, and therefore minimize the effect of these, as you put it, tight board margins.

  • David Driscoll - Analyst

  • Then on the corn side, the U.S. ethanol rack price has fluctuated rather wildly during the quarter.

  • I see numbers as high as $1.45, and then numbers in May down as low as $1.10.

  • You seemingly again here had a very good number.

  • Can you talk to us about the split between your contracts versus your spot sales, then if you would speak to some of this volatility and what we might expect in ethanol going forward, that would be very helpful.

  • Brian Peterson - Senior VP of Corporate Affairs

  • Of course, as I think we've indicated previously, our sales are a mix of contract sales, index sales, and spot sales, and I'm not sure that I want to get into the mix of how that is -- what the ratios of those various components are.

  • You're right, the rack price or the spot price certainly has some volatility to it, but we think the demand/supply balance, if you will for ethanol is really quite good.

  • If you look at the growing demand we have in California, if you look at the prospects we have in New York and Connecticut and the fact that the refiners there are already starting to gear up for that, we think that the industry is really very well-balanced to handle this increased demand, but at the same time, of course we have additional ethanol plants coming on, we have some inventory in the industry, I think, which puts us in a very good shape to handle these surges in demand, but going forward for the balance of this year, we view the supply/demand balance for ethanol to really be quite good.

  • David Driscoll - Analyst

  • Allen, if you would give us some of your thoughts here -- this is more my touchy-feely question here, on how you manage your business.

  • I thought the results in the quarter were stronger than I had otherwise expected, given the data that we can track, and so I really want to ask you what's your qualitative assessment in how you manage your business in what I would characterize as a reasonably difficult environment out there.

  • Allen Andreas - Chairman and CEO

  • David, I would agree with you.

  • I think we have done a very good job of getting through a tough time in our industry.

  • This last year’s drought across North America had a real impact on the crops.

  • We had a substantial increase in the production of ethanol, so that's brought down prices there but as Brian pointed out, we've been working very diligently at bringing our costs down and being very effective at running our businesses the way we have, in front of the potential across the whole world, and I think the strength of these results in this quarter, despite the very adverse circumstances we're faced with, demonstrate the wisdom with which we have become very substantial first-class players in a growing global market for food and feed products.

  • So our diversification over the past several years, and our additions of structural improvements, for example, the acquisition of MCP, the way that's fit right into our businesses so soundly over the past period of time.

  • All of these actions of growing and our origination in South America and strengthening our capacities in China, making our global mix more effective have really brought a lot of synergies to the bottom line and we're just beginning to realize that.

  • With new crops coming in, very substantial production in South America, and excellent weather conditions, or at least dramatically improved from last year weather conditions across North America, we're quite encouraged about the coming year.

  • David Driscoll - Analyst

  • So then the synergies that you're talking about, would you then expect next year to be a double-digit increase over this year?

  • Allen Andreas - Chairman and CEO

  • It's always difficult to project out very far forward in our businesses, but right now we are in a position of real strength across the globe with our mix of assets and with our trading and ability to be able to deliver to our customers very efficiently the products that they need.

  • So the strength of that network is beginning to be realized and I would hope we could show some real improvements with better crop conditions and improved demand in the world markets in the coming year.

  • So barring any significant changes in the outlook for what we see coming, next year is certainly substantially more encouraging than what we had to deal with for conditions in our industry this past year.

  • David Driscoll - Analyst

  • Okay.

  • Thank you very much.

  • Allen Andreas - Chairman and CEO

  • You're welcome, David.

  • Operator

  • The next question is from the line of John McMillin.

  • Please go ahead.

  • John McMillin - Analyst

  • Good morning, everybody.

  • Doug, just a couple questions for you.

  • Did you give the oilseed processing operating number?

  • I think David just said it was $3 million or $4 million down.

  • I thought you said it was $3 million up.

  • Doug Schmalz - CFO

  • If you exclude the write-downs. 90 versus 87.

  • John McMillin - Analyst

  • That's up.

  • Doug Schmalz - CFO

  • Yes.

  • John McMillin - Analyst

  • Okay, because I thought David said it was down.

  • I wanted to make sure I got the operating numbers right.

  • Do you have a D&A number for the year, Doug?

  • Doug Schmalz - CFO

  • It's going to be approximately $630-640 million, in that range.

  • John McMillin - Analyst

  • Then, Al, a couple years ago, when you had an analyst meeting out in Decatur, you reiterated or indicated a return on equity gold.

  • You know, obviously there's been tough events in achieving this and this is your – whatever it is -- fourth, fifth year of coming well short of that goal, and I guess I understand the shortfall even though some competitors like [inaudible] have not been short, but I guess with the expansion plan, you're talking about ramping up cap spending a little bit in '04 and '05 despite the fact that you’ve kind of yet to earn a good return from the past.

  • I guess my question is why are you stepping up cap spending when your returns have not really met your targets?

  • Is it good money after bad?

  • Allen Andreas - Chairman and CEO

  • John, I would agree with you.

  • We've had very challenging conditions the last few years, so we're not making the goals.

  • We still hope to achieve a lot better results than what we're currently making on our invested capital.

  • We have a huge base of solid assets across the world and a network that has the ability to generate much better income than we've been able to realize the last couple years.

  • We have not in any way reduced our ambitions to improve the results around here.

  • This past year I think has been very solid in view of the droughts that we faced, but we have no current plans to make substantial additions in the CAPEX category.

  • Our capital spending really reflects the addition of some structurally important assets to our mix.

  • As you know, we added MCP, we added a couple of operations in the European side, picking up some vegetable oil refining assets in England and some flour milling assets.

  • So we have been working diligently to only take those steps that are absolutely necessary to structurally improve our businesses and to bring our profits into a sounder and stronger position.

  • So outside of that, we do not have any current major plans to step up capital spending.

  • We are building a few new origination elevators down in South America, because we need to strengthen our portfolio there to meet the demands for our European and Chinese processing facilities, but those areas where we're spending money on are areas bringing back significantly better rates of return than what we are overall achieving in our mix.

  • So we're very carefully watching our CAPEX, we're building a stronger balance sheet.

  • As you know, we went through some review by the rating agencies when we made the acquisition of MCP, and since that time we have slowed down our repurchase program on stock, and we are putting our capital back for work and making our balance sheet stronger.

  • Our short-term debt is coming down, and we're getting the balance sheet back into a very strong position so we can meet the challenges of the coming year.

  • John McMillin - Analyst

  • So cap spending for '04 and '05 will be up only modestly?

  • I mean, $425 million is not going way up.

  • Allen Andreas - Chairman and CEO

  • That is correct.

  • Doug Schmalz - CFO

  • I would say that's correct.

  • Allen Andreas - Chairman and CEO

  • It's not going way up.

  • I think it's possible it could come down, because with these acquisitions we've had some initial expenditures that were necessary to integrate them into our operations, and to balance out their mix of product production in a way that was more effective to meet our demands for our customers.

  • But a lot of that is behind us now, so I'm not looking for any substantial increases, and I think it's quite possible we could have decreases in the coming year in capital spending.

  • John McMillin - Analyst

  • In terms of the likelihood for more abandonment charges or costs?

  • Doug Schmalz - CFO

  • John, we look at that every year.

  • As you well know, the FASB requirements on that, we review all of our assets every year, and I can't say we won't have any.

  • We see none of substance right now, but we do that every year.

  • As things change and the economics of those businesses change, we'll continue to review them.

  • John McMillin - Analyst

  • Brian, I guess you're aware of a federal appeals court decision last week that is going to allow the EPA to review its decision on California, which might change some of the numbers you just gave.

  • Do you have a comment on that?

  • Brian Peterson - Senior VP of Corporate Affairs

  • Well, you're right, it's been remanded to the EPA to take a look at that particular matter on this issue.

  • We think that ethanol still is in a very strong position.

  • I think the -- our hope, I guess is, and expectation is that really this is -- the market will be there, that at the end of the day, nothing will change.

  • Allen Andreas - Chairman and CEO

  • The decision of the court actually only said that they only hadn't paid sufficient attention to those characteristics that California asked them to in the particulate emission and ozone areas.

  • We have no reason to believe that the results from the EPA will be changed as a result of that review.

  • The court just said you need to take a hard look at those elements when you make your decision to not grant the waiver that California requested to not have to meet the oxygenate standard.

  • John McMillin - Analyst

  • Okay, thanks a lot.

  • Doug Schmalz - CFO

  • You're welcome.

  • Operator

  • The next question is from the line of Christine McCracken.

  • Please go ahead.

  • Christine McCracken - Analyst

  • Good morning.

  • One follow-up question on crushing margins.

  • I'm just wondering if that includes any net effect of hedging, or is that when you talk about the improvement in North America in crushing margins, or if that's the actual benefit of consolidation or plant closures?

  • Allen Andreas - Chairman and CEO

  • Christine, our operations – we hedge, so the hedging we do within our oilseeds is all combined in our results.

  • Christine McCracken - Analyst

  • So it's quite possible that you did see a fairly large benefit from hedging in your crushing results?

  • Allen Andreas - Chairman and CEO

  • It's normal.

  • Christine McCracken - Analyst

  • Okay.

  • No, that's fair.

  • It's very representative of your expertise, I guess, in hedging and your huge trading operations.

  • Doug Schmalz - CFO

  • We have very substantial volumes, as you know, through our plants.

  • We're a very substantial crusher of oilseeds with more than 100,000 tons a day going through, and about half of that in corn.

  • So we need to hedge our financial exposures in those commodities and do that on a consistent basis, so those results are all reflected in the numbers you see.

  • But the board margins have improved somewhat as a result of a variety of different factors, one of which is that there has been a change in the balance between supply and demand in the crushing business.

  • And so oilseeds going forward with our consolidations and closing less-efficient plants and running the ones that can run at lower costs should result in improved conditions for us in the coming year.

  • Christine McCracken - Analyst

  • Do you feel comfortable now that you've shut some of these plants and we seem to be getting a better balance of supply and demand?

  • Crushing marking seems to be coming up.

  • Do you feel comfortable with where you were now with capacity in the U.S.?

  • Allen Andreas - Chairman and CEO

  • Well, yeah, I think that we feel comfortable with that given the circumstances we're facing in the old crop situation here, with a tight soybean supply, that we have a very good balance right now in where we’re crushing the soybeans, and I think that we're utilizing our overall capacity in a most effective and efficient manner to maximize the results in these difficult circumstances.

  • Christine McCracken - Analyst

  • But you don't anticipate shutting any more facilities?

  • Allen Andreas - Chairman and CEO

  • I think it would be doubtful that we would have to close more facilities.

  • As I said right now, I think we have probably the most efficient mix, given the bean supply situation we face.

  • Doug Schmalz - CFO

  • But this always changes every day.

  • The demand from the Asia-Pacific regions changes.

  • There's good oil demand out of India, so that mix, with freight rates all considered, always requires us to continue to look at each of our facilities and whether it can produce on an efficient basis the amount of materials we need to meet our customers' demands.

  • So it's an ongoing process, and structurally changing the industry is part of managing this business, so there could still be some closings, but we don't have any current intentions.

  • Christine McCracken - Analyst

  • With regard to China, your joint venture there, it seems to be gaining some traction.

  • Do you anticipate consolidating those operations at any point?

  • Is that a business that you’d like to wholly own?

  • What does that mean for your cash needs going forward?

  • Allen Andreas - Chairman and CEO

  • Well, we are minority partners in the crushing businesses that we're engaged in, in the Asia Pacific region with a variety of different partners, but primarily two groups.

  • The Costco group, which is the Chinese government's agricultural businesses and then the Wilmar group out of Singapore, which is the [Kuak] family's interest in crushing in China.

  • So we have a variety of different mix of ownerships in those interests, and so there is no current intention to consolidate.

  • We own approximately 30% of the mix of those businesses, and they are fully integrated into our operations from the viewpoint of trading.

  • Their raw materials are largely originated from our Hamburg trading group, the Toepfer group, and we're using our origination facilities in South America and in North America to feed the materials that are necessary for that operation.

  • So our CAPEX view of what that's going to require is quite limited, because the additions we make as we grow and expand over there are always limited to about a one-third capital contribution, and then they’re borrowing in the local markets for the working capital needs.

  • So I don't see any major expenditures on behalf of ADM to the Asia market, although we will continue to grow and expand and strengthen our position there, and continue to provide the origination capacity to make certain they're supplied with the raw materials they need across the world.

  • Christine McCracken - Analyst

  • Just one final question on citric.

  • This is a business doesn't seem to have performed well, at least as far back as I can remember.

  • Is there any way to either exit that business entirely or convert that facility over to other products?

  • Allen Andreas - Chairman and CEO

  • I think if you look at the industry right now, it's obviously has had a severe overcapacity situation.

  • I think that we're encouraged by the consolidation that we have seen around the world in citric capacity.

  • We've taken some steps to improve the efficiencies of our operation.

  • As you probably know, our Ringaskiddy, Ireland factory has been down, but we recently settled a labor situation there and expect to be back in operations in a few months.

  • But the overall world market for citric acid is growing at a pretty healthy rate -- 6-7% annual rate.

  • So I think it is going to take a little bit of time for this business for the demand to catch up with the capacity.

  • But I think there are some reasons to believe this business can improve over the long term.

  • If it doesn't, in response to your question regarding the capabilities of switching, yes, there are opportunities to utilize these assets for other products.

  • However, we think the citric acid business over the long term can be a good business, so we intend to remain in it.

  • Christine McCracken - Analyst

  • All right.

  • Thank you.

  • Operator

  • The next question is from Bill Leach.

  • Please go ahead.

  • Bill Leach - Analyst

  • Good morning.

  • Doug, I just wanted to ask you a few housekeeping things.

  • Did you have any effects from LIFO or private equity funding in the quarter?

  • Doug Schmalz - CFO

  • Negligible.

  • Bill Leach - Analyst

  • And, let's see, for the new year, should we use 28.5% for the tax rate?

  • Doug Schmalz - CFO

  • Yeah, I would say we'll be in that 28-29% range.

  • We'll revisit that again as we prepare our tax returns and so forth, but I think that's okay for now.

  • Bill Leach - Analyst

  • And the unallocated corporate number in the quarter seemed to be up quite a bit if you take out the unusual stuff.

  • Was there anything in there this year that was unusual?

  • Doug Schmalz - CFO

  • In the segment, the unallocated corporate?

  • Bill Leach - Analyst

  • Yeah.

  • Doug Schmalz - CFO

  • That does not include – most of the write-offs are in the segment data.

  • Bill Leach - Analyst

  • But you had the vitamin gain and stuff last year.

  • Doug Schmalz - CFO

  • That was in the segments also, the ‘other’ segment.

  • The corporate is down $6 million I think it is, total, for the quarter and the majority of that was due to a reduction in our European litigation accruals.

  • Bill Leach - Analyst

  • I see.

  • And lastly, I couldn't hear what you said about the energy bill.

  • Could you just mention again where that's progressing?

  • Brian Peterson - Senior VP of Corporate Affairs

  • The House has passed an energy bill.

  • The Senate has passed the renewable fuels component of their energy bill, but have not completed the total energy bill.

  • We expect when Congress comes back after their August recess, we'll see some progress in the Senate and are hopeful we can have -- that this will be before the conference committee this fall.

  • Bill Leach - Analyst

  • Thanks a lot.

  • Doug Schmalz - CFO

  • Bill?

  • I think you maybe misunderstood.

  • Were you asking for the full year of the change in that other area?

  • Because the big item changes there are in securities, which we had a big security gain last year, remember, with the IDP and so forth.

  • Bill Leach - Analyst

  • No, I was just looking at the fourth quarter.

  • Doug Schmalz - CFO

  • The fourth quarter's only down six and the majority of that is what I said.

  • Like for the full year it is primary the securities change gain.

  • Bill Leach - Analyst

  • Thank you.

  • Operator

  • The next question is from the line of Leonard Teitelbaum.

  • Please go ahead.

  • Leonard Teitelbaum - Analyst

  • Good morning.

  • Doug Schmalz - CFO

  • Good morning, Lenny.

  • Leonard Teitelbaum - Analyst

  • First, Bill, I want to congratulate you on your move, and wish you very good luck.

  • The comment you just made to Bill, the 44 from 13 reflected the gain, unusual gain.

  • I wasn't sure what you said, but unless I had misheard you --

  • Doug Schmalz - CFO

  • What are you talking --?

  • Leonard Teitelbaum - Analyst

  • I thought you said the big swing in the ‘other.’

  • Doug Schmalz - CFO

  • No, he was asking about corporate unallocated.

  • Leonard Teitelbaum - Analyst

  • Oh, I’m sorry, I misunderstood what he said.

  • I beg your pardon.

  • Doug Schmalz - CFO

  • Maybe I misunderstood, but I thought he was talking --

  • Leonard Teitelbaum - Analyst

  • I think you got it right.

  • Let me just ask a couple things on that other side where we had the big gain.

  • Would you expect that to continue at the $40-45 million rate or are we going to go back to what it was, around the $13-20 million, however we construct our models.

  • Doug Schmalz - CFO

  • No, I think we would expect that, because as we have discussed, we have cocoa in there, and we have our bioproducts, which have improved significantly over prior year levels, and then we have the citric acid business, which is hopefully returning back to at least a profitable level from where it's been, so we would expect that to stay at the higher rate.

  • Leonard Teitelbaum - Analyst

  • And why shouldn't we assume that the services division, since obviously that was a crop, a fuel problem, et cetera, are to reverse itself next year.

  • Is there any reason not to be bullish on that?

  • I think we had a solid and good outlook on the crops, but I'm looking more at that service component right now, just services, obviously.

  • Doug Schmalz - CFO

  • No, I think we expect it to return to normal levels.

  • We've got excellent crop prospects, which will impact both the transportation part of that sector, as well as the grain handling part of that sector.

  • I mean, we should have the opportunities during storage charges, handling fees, and just good opportunities in that sector.

  • We would expect it to go back to normal levels.

  • Leonard Teitelbaum - Analyst

  • The way this thing breaks, if I remember right, is we'll see most of this improvement in the December quarter?

  • Or will we see it starting as early as September?

  • Doug Schmalz - CFO

  • No, the impact should be probably -- it will probably come too late in the current quarter to have much effect on the current quarter.

  • I would expect the impact to really be in our second quarter.

  • Leonard Teitelbaum - Analyst

  • So from around operating condition, we should expect a September quarter, current quarter look, kind of like the fourth quarter did, in terms of results, what with the trending up?

  • I'm trying to get some kind of a feel of where you see the earnings flow.

  • Doug Schmalz - CFO

  • I think that's a fair analysis.

  • Leonard Teitelbaum - Analyst

  • Thank you, sir.

  • Now, could you also -- we've talked about virtually every climate you're in except Mexico.

  • Will this be the perennial boil that never gets lanced, or are we making some progress down there?

  • Doug Schmalz - CFO

  • It's not even seeping. [Laughter.]

  • Leonard Teitelbaum - Analyst

  • It’s not even – you want to qualify what you’re saying?

  • Allen Andreas - Chairman and CEO

  • Actually, Lenny, let me comment on that.

  • Mexico has really gone dead in terms of the open discussions, but I think there's reasons to believe there are a lot of political pressures on the continuing negotiation between the USTR and the Mexican group on trying to resolve the issue on high-fructose corn syrup and sugar.

  • That debate has not gone away.

  • There's been a lot of discussion in Washington about it and USTR is very seriously looking at its options on how to get it resolved.

  • We've had supports from Senator Grassley and a whole number of other people in Washington to try to get the situation resolved.

  • There are discussions taking place again now.

  • As you know, there was recently an election in Mexico, PRI returned to a very strong position in their government, and President Fox is working with the PRI, and they are looking at this issue.

  • There are a number of options, as you know, for solutions to this problem, and it stands in the way of any kind of intelligent unfolding of NAFTA over the coming years because in 2008, the boundaries are supposed to be open.

  • This is not an issue that has gone away.

  • We're not pessimistic about it.

  • There continue to be discussions about not only sugar and the access to each other’s markets, but also about clean air problems, ethanol, and other possible solutions.

  • So we're hopeful something constructive might come out of that in the near future, but as you well know, this process has been going on for several years, almost five years since we were first down there trying to resolve our differences.

  • So we're not building the businesses based on an immediate solution to the problem, but we are optimistic that it might yet still get solved and we are looking for other uses for our starches, as Brian pointed out in his presentation, and to bring down the overcapacity that has resulted by the loss of the Mexican market.

  • I think the industry itself is making significant progress in that regard.

  • There should be a better balance in the coming years between supply and demand for fructose in the United States, and hopefully we'll get some relief from the problem with Mexico.

  • Leonard Teitelbaum - Analyst

  • Thank you.

  • One last thing, or two things.

  • First of all, it's my understanding that the trans fatty acids get into margarine because of hydrogenation, and not the basic soy oil.

  • Is that a correct statement?

  • Allen Andreas - Chairman and CEO

  • Correct.

  • Leonard Teitelbaum - Analyst

  • Well, if there’s going to be a move to eliminate the trans fatty acid, does that mean that – now who would come up with a solution to hydrogenation, you or the food companies?

  • Allen Andreas - Chairman and CEO

  • ADM would come up with a solution.

  • Leonard Teitelbaum - Analyst

  • Are you working on that now?

  • Allen Andreas - Chairman and CEO

  • Absolutely.

  • We have products available to our customers right now, which solve the trans fatty acid issue for them.

  • Leonard Teitelbaum - Analyst

  • So if this move starts to gather steam, you're already there, is the point I'm trying to find out?

  • Allen Andreas - Chairman and CEO

  • Absolutely right.

  • Leonard Teitelbaum - Analyst

  • Okay.

  • Would that be the same as DAG oil and the other products?

  • I would have to think that -- our analyst in Japan, of course is very excited about this, but I would have to think that the market is already there for DAG oil, and aren't you -- are you the exclusive manufacturer of that product in the U.S.?

  • Allen Andreas - Chairman and CEO

  • Of DAG oil?

  • Leonard Teitelbaum - Analyst

  • Yes.

  • Allen Andreas - Chairman and CEO

  • Yes, we are.

  • We are.

  • Leonard Teitelbaum - Analyst

  • But you’re testing it.

  • Isn't the market already there?

  • Allen Andreas - Chairman and CEO

  • No this is a – let me try to explain this -- an innovative new oil.

  • Leonard Teitelbaum - Analyst

  • Right.

  • Allen Andreas - Chairman and CEO

  • It converts -- simply put, and I'm not a chemist so let me get this --

  • Leonard Teitelbaum - Analyst

  • I'm just an eater. [Laughter.]

  • Allen Andreas - Chairman and CEO

  • It tastes good.

  • Leonard Teitelbaum - Analyst

  • I want to know the time, I don't want to build a watch.

  • Allen Andreas - Chairman and CEO

  • But, anyway, it converts basically some of the triglycerides to diglycerides in the oil, and therefore the body consumes or digests this component differently.

  • Simply speaking, it's consumed more as energy rather than stored as fat.

  • But it's a new concept for the U.S. market and I think it's very prudent for us to do test marketing of this before we move ahead on a full-scale process.

  • But we’re in the process of doing this, and as I said, the initial results are really quite encouraging.

  • Leonard Teitelbaum - Analyst

  • Dow Jones printed an article yesterday that cites the Washington Post that the joint venture between you all and MCP has got to be dissolved.

  • Did I misread that?

  • Allen Andreas - Chairman and CEO

  • I don't know that you misread it because that's what the headline says, but that's wrong.

  • It's just flat wrong.

  • What's happening is, as part of the approval of this MCP purchase, a joint venture that existed between MCP and Corn Products Marketing – a marketing joint venture, that part had to be dissolved.

  • In other words, we couldn't step into the place of MCP in that joint venture.

  • Brian Peterson - Senior VP of Corporate Affairs

  • It was part of the agreement with the Department of Justice when they approved our purchase of MCP that we would dissolve the joint venture between Corn Products and MCP for marketing fructose, and that was done in accordance with the order prior to December 31st of 2002, and so that merger is now complete, finished.

  • The MCP factories are part of our group.

  • They're integrated, and CPC is a competitor of ours now.

  • We have dissolved the joint venture, and we are very pleased to find that we have discovered many synergies between the MCP plans and our corn group, and we are realizing some significant improvements in the operation of the entire corn group as a result of it, and there will be no complications with that merger as a result of dissolving the joint venture.

  • Leonard Teitelbaum - Analyst

  • Thank you very much.

  • Good quarter.

  • Brian Peterson - Senior VP of Corporate Affairs

  • Thank you, Lenny.

  • Operator

  • The next question is from the line of Ken Zaslow.

  • Please go ahead.

  • Ken Zaslow - Analyst

  • Good morning.

  • Just to talk a bit about ethanol, to what extent are you concerned about the overcapacity in the industry, and even if you're assuming the renewable fuel standard passes this year, and California, New York, and Connecticut all follow through on their January 1st deadlines, what are your expectations for balancing the supply and demand in light of the expansion from the coops?

  • If you could just talk to that for a little bit.

  • Allen Andreas - Chairman and CEO

  • As we indicated, going forward and looking at the conversions that are already under way, we think the supply/demand balance will really be pretty good.

  • As I've indicated, the industry is carrying some inventory to be able to be able to supply this new demand as it comes on, but I think that we feel very confident, even in view of the new plant still to come on, that for the balance of this year into next year, the supply/demand balance is really very good for ethanol.

  • Ken Zaslow - Analyst

  • The second question I have is if you look at third quarter year over year on earnings – on the equity affiliates, it was down pretty significantly.

  • Then this quarter you had a big up on that.

  • I guess on the margin, what changed from quarter to quarter?

  • How did you get the momentum going again?

  • Allen Andreas - Chairman and CEO

  • Quarter over quarter --

  • Doug Schmalz - CFO

  • I'd have to look back to the third.

  • I think we had some fund losses in the third quarter, perhaps that were in there.

  • I’ll have to look, I'll get back to you on that, Ken.

  • I'm just not sure right offhand.

  • Ken Zaslow - Analyst

  • Is this more the run rate we should be thinking about at this level?

  • Just not a very transparent number, and I'm just trying to figure out how to think about it going forward.

  • Doug Schmalz - CFO

  • Right.

  • Just a second.

  • Well, number one, a year ago third quarter included top run on equity basis.

  • This year's did not, so that was part of the down.

  • The other part was in our investment in the CIP group, which was the [inaudible] tunnel deal, it was basically sold out during that time frame by that group, and we had a decrease there in the earnings.

  • Those are the two items.

  • You're talking third quarter, right?

  • Ken Zaslow - Analyst

  • Fourth quarter went from, what is it, 26 to 36, and the third quarter went from 46.5 to 19.1.

  • So, you know, obviously there was a--

  • Doug Schmalz - CFO

  • Golden Peanut and the Asian operations were the two big changes there.

  • Ken Zaslow - Analyst

  • Okay.

  • Great.

  • Thank you.

  • Operator

  • The next question is from the line of David Nelson.

  • Please go ahead.

  • David Nelson - Analyst

  • Good morning.

  • Doug Schmalz - CFO

  • Good morning, David.

  • David Nelson - Analyst

  • Uses of cash, you spent $425 million on CAPEX, $530 million on acquisitions, and as Allen indicated, CAPEX may in fact go down, maybe there's not another MCP out there next year.

  • Could you envision a substantial dividend increase or substantial share repurchase next year?

  • Allen Andreas - Chairman and CEO

  • Following the repurchase of MCP, we were reviewed by the rating agencies, and we have not been aggressively pursuing a repurchase program.

  • As you know, David, we have always been very prudent, cautious buyers of our stock, because our business is capital-intensive, and we do put a lot of our cash flows back into property plant and equipment for maintenance.

  • We're not pushing the repurchase side at this point in time.

  • We think we can find better uses for our cash flows and capital.

  • So at the coming board of directors meeting in early August, we will again be reviewing our dividend policy.

  • But we increased our dividend, as you know, from 20 cents to 24 cents last year, and we will be reviewing that again in light of our substantial results.

  • Now, this past year, total results were down somewhat from the year before.

  • So I don't mean in any way to give you an indication to what we will do, but that policy will be reviewed, and we are very aware of the fact that many companies have, in the light of the changes in the tax code been a little more liberal with repayment of cash flows to their shareholders.

  • David Nelson - Analyst

  • Great.

  • Your comments on '04 are maybe as buoyant as I've ever heard, Brian was talking about the positive benefits from the larger crops this year.

  • Am I reading you correctly that we could see a substantial increase in earnings, especially in light of the larger crop this year?

  • Is that what I’m hearing?

  • Allen Andreas - Chairman and CEO

  • Well, I think that what we see is we see opportunities for demand to increase, and we see opportunities for raw material supplies to be really quite ample, and therefore we would expect that the spread, or if you will, margins should be fairly healthy this year.

  • We're in a business that's subject to the vagaries of weather and other things that come along, so it's really difficult to make a projection.

  • Let me just say that looking at what we see at the present time, I think that we're quite pleased with the economic environment for our businesses going forward.

  • David Nelson - Analyst

  • Great.

  • Thank you very much.

  • Operator

  • If there are any additional questions, please press the 1 key now.

  • We do have a follow-up question from David Driscoll.

  • Please go ahead.

  • David Driscoll - Analyst

  • Hi.

  • Thank you.

  • Brian, I apologize for beating a dead horse here on this ethanol question, but I have to raise one point.

  • If I understand the legislation correctly, it projects 2.5 billion gallons of renewable fuel demand in 2005, and also if I read my statistics right we're expected to have 3.4 billion gallons of ethanol capacity in the United States at the end of this year.

  • So there's a disconnect here, because it looks to me like we have a situation that we're headed for of relatively significant overcapacity when we get into '05.

  • Are your comments specific to '03 and '04, and how would you reconcile this?

  • Allen Andreas - Chairman and CEO

  • I think we're expecting the capacity at the end of this year to be 3.1 billion gallons.

  • I think you're correct on the renewable fuel -- mandated use of renewable fuels, but I think there were probably other reasons to use renewable fuels or ethanol.

  • There's still the Clean Air Act, which ethanol -- it's a strong component and enabling some communities to meet their requirements under the Clean Air Act.

  • There's also currently just an economic incentive for refineries to use ethanol, so you have to look at a broader picture than just the Renewable Fuels Act.

  • Doug Schmalz - CFO

  • David, I think as an overall view of the ethanol business, consider it to be an integral part of our wet corn milling.

  • And we use all of the coproducts or byproducts, as do our customers, and so it's an important part of our business, but it's a business that we are amazingly competitive at, because it's a coproduct for us, so the new [inaudible] mills that are coming on stream -- there's about 73 plants currently operating and 13 more under construction.

  • It is clear if the energy legislation does pass that we will have plenty of capacity to meet the lower end of that demand when it starts, and then it is incrementally increased over a period of about ten years to 5 billion gallons.

  • As Brian points out, it is currently very economic for the oil companies to use it.

  • It's a necessity if you're not going to use MTBE in today's environment without the legislation passed and ADM is in a very competitive position in this industry to operate its plants to meet the demand.

  • As contrasted with all the new plants that are built, we've had this business in place for more than 20 years, and it's highly depreciated on our books, and it's a cold product for us.

  • So we are still optimistic about the role that ethanol will play in allowing us to balance the utilization of starch streams coming from our plants in the coming several years, no matter how this energy legislation turns out.

  • David Driscoll - Analyst

  • I would like to follow up on one thing that John McMillin asked about.

  • He asked about the court case in California with the EPA, but I had heard differently, though, that California in all of this discussion in the Senate, they had tried to kill the renewable fuel standard, and they failed.

  • But I am under the impression that upon the passage of the energy bill, California will be removed from the oxygenate standard and that's effective, I understand, immediately upon when the energy bill goes into effect in January of '04?

  • Is that right?

  • Allen Andreas - Chairman and CEO

  • If the energy bill passes, the oxygen standard goes away, and then there's a mandatory requirement that the oil companies use a specific volume, which starts at 2.5 under the existing proposals in the House and in the Senate, but the oxygenate standard goes away not only for California, but for every place.

  • Then there will become a credit trading marketplace, I believe in which we will play a major role, and in the meantime they will be mandated to use a specific volume minimum on the bottom side, but that does not mean they can't take a great deal more volume to use, because it's economically efficient for them to do that.

  • So they no longer will be required to use the oxygenate, but we see a major demand for ethanol in this country in excess of our capacity in the coming years as far as we can see ahead.

  • David Driscoll - Analyst

  • Are you guys highly confident there will not be a transitionary issue between the loss of the oxygenate standard and then gaining the renewable fuel standard in January of '05.

  • Allen Andreas - Chairman and CEO

  • We have every reason to believe that the legislation will not allow there to be a gap between those two situations, where the oxygenate standard goes away and there’s no minimum required.

  • But in current market conditions we'd be selling it anyway, because the oil companies are using it to keep clean air and using it to expand their supplies from their refineries and using it to meet the clean air requirements that they have to meet, whether the legislation passes or not.

  • David Driscoll - Analyst

  • There is good news to $30 oil for some people, I suppose.

  • Allen Andreas - Chairman and CEO

  • That's exactly right.

  • Corn, as you know, has declined quite a bit, too, so our net corn costs going into that sector of our business, are favorable at these kinds of levels, and increasingly would appear to be competitive in order to produce the ethanol that we make.

  • David Driscoll - Analyst

  • Super.

  • Thanks a lot, everybody.

  • Doug Schmalz - CFO

  • You're welcome.

  • Operator

  • I'm showing there are no further questions in queue at this time.

  • Doug Schmalz - CFO

  • Thank you, everyone, for joining us.

  • We appreciate it and look forward to being with you again in three months.

  • Thanks.

  • Operator

  • Ladies and gentlemen, that does conclude today's conference.

  • We thank you for your participation.

  • You may disconnect at this time.