Andersons Inc (ANDE) 2007 Q4 法說會逐字稿

Ladies and gentlemen, good day. Welcome to the Andersons Inc. 2007 year end and fourth quarter earnings conference call. My name is Mike and I will be your operator today. (OPERATOR INSTRUCTIONS). As a reminder, ladies and gentlemen, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Gary Smith. Sir, please proceed.

Good morning and thank you for joining us for the 2007 year end and fourth quarter conference call. As you know, certain information that will be discussed today contains forward looking statements. Actual results could differ materially from those presented in the forward-looking statements as a result of many factors, including general economic conditions, weather, and competitive conditions, and conditions in the Company's industries in both the United States and internationally, and additional factors that are described in the Company's publicly filed documents, including its '34 Act filings and the prospectuses prepared in connection with the Company's offerings.

It also includes financial information of which, as of this date of the call, our Company's independent auditors have not completed their audit. Although the Company believes the assumptions upon which the financial information and its forward-looking statements are based are reasonable, they can give no assurance that these assumptions will prove to be true.

Let me turn it over to Mike Anderson for his comments, and we will be available for questions at the end of the call.

Good morning everyone. As we announced yesterday in the press release, both our full-year and fourth quarter net income and EPS set new records for the Company. Our Grain and Ethanol and Plant Nutrient Groups had quite good years.

In total the Company achieved net income of $68.8 million for the year, or $3.75 per diluted share, on revenues of $2.4 billion. Last year the Company reported net income of $36.3 million, or $2.19 per diluted share on revenue of $1.5 billion. This represents revenue growth of 63%, net income growth of 89% and EPS growth of $1.56 per share.

The revenue growth experienced this year has come from several sources including higher grain and plant nutrient prices, higher grain bushels and plant nutrient tonnage, and ethanol sales that we have made on behalf of our ethanol joint ventures.

Our fourth quarter performance this year helped solidify our full-year results. In total the Company achieved net income of $23.5 million, or $1.28 per diluted share on revenues of $785 million. This compares to the same three-month period last year in which the Company reported net income of $13.8 million or $0.76 per share on revenues of $463 million. Being able to report record earnings for both the quarter and the fourth consecutive year is truly gratifying, however, to fully understand the total Company results let's take a look at each of our five business groups.

Starting with the Grain and Ethanol Group, its fourth quarter operating income of $30.1 million was $17.8 million higher than its year earlier result. Although revenues are not necessarily a good indicator of performance, the Group's total revenues were up $243 million in the fourth quarter, of which $144 million is attributable to sales of grain made to, and sales of ethanol made for, the ethanol joint ventures. Remember, as part of our origination and marketing agreements we earn fee income for these services, but no margin is recognized on the transactions.

The income results for the quarter are up mainly due to improved performance within our affiliates, Lansing Trade Group and the ethanol joint ventures. Our income from the Group's investment in Lansing Trade Group was higher in the fourth quarter than it was for the three other quarters combined. Also both the Albion, Michigan and Clymers, Indiana ethanol plants were in operation during the entire fourth quarter. This compares to the prior year when only the Albion plant was an operation. This led to a substantial increase in both our share of the Ethanol LLC income and management and marketing fees earned for the quarter.

Additionally this increase in ethanol production has had an added benefit in that our grain business earned additional fees from originating corn for the ethanol plants and from marketing the distillers' dry grain produced at the ethanol plants.

I'm pleased to report that construction is complete on our third ethanol plant in Greenville, Ohio. The plant is currently in startup mode. We dumped our first load of corn this week, and we are scheduled to begin production within the next week.

For the full-year the Grain and Ethanol Group's operating income was $65.9 million, which is more than double its previous record income of $28 million earned last year. This year-to-year increase is due to significantly higher earnings in our ethanol business and Lansing Trade Group investment, and increase in space and fee income, and year-to-year increase in development fee income of $3.5 million that relates to fees we earned for the establishment of our Ethanol LLCs.

Total revenues for the year were $1.5 billion, including $407 million in sales of grain and ethanol made for the ethanol joint ventures as part of our origination and marketing agreements, which only a fee is received. This compares to revenues of $791 million in 2006. Total revenues in the Grain and Ethanol Group have increased this year due to an increase in bushels sold, a considerable increase in the average price of the grain sold, and an increase in the gallons of ethanol sold.

The Rail Group continued to see modest growth in revenues, gross profit and operating income in the fourth quarter. In total the Rail Group had operating income of $3.8 million this quarter on $28 million of revenues. Compared to last year, income increased by $400,000 and revenue was up $4 million, or 17% this quarter. However, maintenance expense continues to be an issue for the Group. Maintenance expense has remained high due to the elevated cost of steel and railroad labor rates and the higher frequency wheel set replacements.

The Group's nonleasing businesses, which are the rail car repair shops and the manufacturing unit, experienced both higher sales and gross profit in the fourth quarter in comparison to last year. The Rail Group's operating income for 2007 was $19.5 million, which is the same as 2006. The Group generated revenues of $130 million, which is a $17 million increase from the prior year. During the year the fleet grew to more than 22,700 railcars and locomotives, which is about 8% higher than the year earlier. The Group's average lease rates have remained stable, despite a slowdown in the overall rail industry. The average railcar utilization rate for 2007 was 92.6% and ended the year at 93.4%.

Including gains from railcar sales and related leases entered into during the year, gross profit in the Rail Group's leasing business was higher than its 2006 results. The railcar repair and manufacturing businesses experienced lower gross profit during the year, but saw some improvement at the end of the year.

The Plant Nutrient Group achieved record operating income of $8.7 million during the fourth quarter. This was a $7.4 million improvement over last year's results. Fourth quarter revenues for the Group were $140 million in comparison to the $67 million reported last year. The net income record resulted from significant increases in both volume and margin. Sales volume remained high in the fourth quarter as a result of increased wheat acres planted, and increase in earlier customer purchases. We believe this increased demand is due to customer expectations of continuing nutrient price escalation, and its concerns that certain products may become unavailable later in the year.

For the full-year the Plant Nutrient Group earned a record $27.1 million on $466 million of revenue. Last year the Group generated operating income of $3.3 million on $265 million of revenues. This represents revenue growth of 76% and operating income growth of $23.8 million. The Group earned $10.4 million in 2005, which is the best previous year.

Due to the Group's storage capacity it was able to purchase and store inventory until it was later sold. As the inventory appreciated significantly the time it was purchased and sold, the Group's margins were also significantly higher. The Group's margins were also positively impacted by price increases.

Total nutrient volume for the year increased by more than 40%. This was influenced by both a 20% increase in corn acreage and market share growth. The increased demand for corn as a result of ethanol production impacted the Group's performances as corn requires more nutrients than other crops. Corn requires approximately 2.5 times the nutrients per acre than soybeans require, and 1.7 times as much as wheat. We are currently anticipating a strong corn planning in 2008 as well, however we do not envision that planting will reach the record established in 2007.

The Turf and Specialty Group had an operating loss of $800,000 in comparison to operating income of $200,000 in the prior year. It is typical for this group to incur a loss in the fourth quarter due to the seasonality of its lawn business. And actually the loss in the fourth quarter was less than we had anticipated. Total revenues were $19 million for the quarter compared to $18 million in 2006. The moderate sales increase in the fourth quarter is due to a significant sales increase in the dispersible granule product category, and a 9% increase in sales in our corn cob division.

For the full-year the Turf and Specialty Group's operating income was $100,000 on $104 million in revenues versus last year the revenues were down about $7 million and operating income was $3.1 million lower. The 2007 shortfall was attributable to the continuing escalation of raw material cost, and reduced sales of insecticide and fungicide products that resulted from dry weather in the spring and summer. The cob business had lower earnings during 2007 due mainly to the need to outsource some of the cob, which resulted in higher cotton cost for the year.

In our Retail Group total revenues were $50 million in the fourth quarter, which were $1 million higher than the same period in 2006. These revenues included additional sales generated by the Andersons Market store that was opened in Sylvania, Ohio this year. However same-store sales were down 2.8% during the quarter.

The Group's operating loss of $600,000 for the period was significantly below the operating income of $1.9 million reported for the same period last year. The majority of this difference was caused by the Retail Group recording a $1.9 million impairment charge on certain retail assets. The Group was also affected by a decline in operating income in the Toledo area market, which includes three large stores and a new Market store.

The Retail Group's total revenues of $180 million for the year were up $3 million, while operating income was just over breakeven. This was significantly below the $3.2 million the Group earned in 2006. This year-to-year income differential was caused by the same factors mentioned for the fourth quarter, the most notable of which was the impairment. On a positive note the average sale per customer increased just over 3% during 2007, which was partially offset -- which partially offset the decline in same-store customer counts of about 2%.

Now I will turn the floor over to Gary for his Treasurer's comments.

The Company's 2007 effective tax rate was 35%. That is up 2% from 2006. In 2006 we had an ethanol small producer's tax credit that was not available in 2007. In addition our state and local income tax rates were higher in 2007. For 2008 we are forecasting a tax rate of 36.8%.

Interest expense for 2007 in the fourth quarter was $5.7 million, up $1.9 million from the same period last year. For 2007 in total the Company's interest expense was $19 million, up $2.7 million from the previous year. Mainly this change is occurring in the short-term interest expense area. Our interest rates were up slightly, but our average outstanding borrowings were up significantly as well, more than $61 million for 2007.

EBITDA for 2007 was $151 million versus $96 million in 2006. For the year ended our earnings from affiliates totaled $32 million, up $24 million from the same period last year. Other income for the Company totaled $22 million versus $14 million in 2006. And those items in other income include $3 million for a business interruption claim, which hopefully will not repeat, $5 million from the sale of some Chicago Board of Trade shares that we sold. Unfortunately, we only had one seat, so we don't have an additional one to sell. And then thirdly about $5 million in transaction fees for development of the ethanol plants. And we don't expect to earn at this level -- at the same level in 2008.

Turning to the balance sheet on I think you will notice that our total assets are $1.3 billion as opposed to just shy of $900 million last year. And I would like to point out something that we have showed you in the last two quarters, talked about in the last two quarters, but because this affect the total gross assets I think it is important to repeat it one more time.

During the second quarter of 2007 the Company's balance sheet was expanded as a result of an accounting change that was made to reflect the FASB FIN 39-1. We adopted this recent interpretation which allows for net reporting of margin dollars, along with the fair value of future and option contracts held at the Chicago Board of Trade. We have also elected to revise our presentation of commodity contracts from our previously disclosed net method to a gross method. Our prior presentation was consistent with industry practice, but this revised presentation will provide additional information about our activities and counterparty risks.

You will note the following additional lines on our balance sheet, margin deposits net, commodity derivative assets will both be current and long-term, and commodity derivative liabilities will also be current and long-term. Current assets increased to $915 million by year end from the revised year-end balance of $554 million. Since 2006 year-end trade receivables have gone up $19 million. The increase was driven by the Grain and Ethanol Group with an increase of $22 million, and trade receivables in Plant Nutrient were down slightly by $3 million, while the other units were relatively flat. Margin deposits net have increased by $15 million as well.

Inventories increased by $206 million to over $0.5 billion from last year's revised year-end balance. Compared to the 2006 year-end levels, the largest increase by far came (technical difficulty) $181 million. This increase is the result of higher grain prices and more bushels owned. The Plant Nutrient and Turf and Specialty Groups' inventories were up $21 million and $3 million, respectively, due to higher raw materials prices. The other groups were essentially unchanged.

At the end of 2007 the Company's total inventory was more than $62 million -- 62 million bushels, down 4 million bushels from our year earlier position. But remember that I said earlier that our owned bushels are actually greater, and the 62 million bushels includes both owned and stored for other people.

Net working capital at the end of 2007 was $178 million, an increase of $16 million from 2006 year-end. Cash and cash equivalents at the end of the year of $22 million, was about $1 million -- down about $1 million compared to last year. Included in this balance is $5.5 million held in an account which is routinely used for certain like kind exchange railcar transactions.

Total assets at the end of December 2007 were $1.3 billion, as I said earlier an increase of $456 million. Along with the increase in working capital, investments and advances to our affiliates added $60 million. And the Company's pension asset added $10 million. And of course the commodity derivative inventory accounting change, as noted earlier, added about $121 million into the total assets.

At the end of 2007 our depreciation totaled $26 million. Total capital spending, including the investment in affiliates at the end of 2007, was $55 million versus $50 million for the same period in 2006. Railcar purchases and sales were $56 million and $47 million, respectively, during the year. Railcar purchases and sales for the same period last year were $86 million and $65 million, respectively.

Our total long-term debt totals $189 million. $56 million of that is recourse and $133 million is -- I'm sorry, $56 million of nonrecourse and $133 million is recourse. That is an increase of about $32 million. And that is all in the recourse column, if you will. Our total funded debt to equity ratio is 0.37 to 1. And that is exclusive of our nonrecourse debt. And at year-end our average interest rate for all long-term debt was about 6% total.

And of course we ended with total equity at $357 million. That is up $86 million from last year's number. And hopefully you received your dividend check on January 23 when we paid our first quarter dividend of $0.0775 per share. Mike?

Before we take questions, a few comments. First, I am obviously pleased with the earnings growth we have achieved this year. Our full year and fourth quarter income and earnings per diluted share were both records. I don't want to miss this opportunity to thank the entire team that has made our current year performance possible. That being said, please remember that many of the Company's businesses are cyclical in nature. For instance we currently anticipate a drop in corn acres. And the economics of the ethanol industry have changed over the course of the last year.

That being said, I also want to reiterate that the Company is committed to growth, positive sustainable growth. We are continually looking at potential opportunities. As you know, we have been deliberately growing various business units for several years and we intend to continue doing so. In recent years we have increased the size of our railcar fleet, entered into the ethanol business, expanded our partnership and investment with Lansing Trade Group, added physical locations, and developed proprietary productlines. Based on how we have positioned ourselves, I am very excited about the future of this Company.

That includes my prepared remarks. Gary and I will now be happy to answer questions that you have. So, Mike, we will turn it back to you.

(OPERATOR INSTRUCTIONS). Heather Jones, BB&T.

I have a few questions. One going back to Plant Nutrient, I thought your comments implied some forward buying by farmers. And I was wearing if that was significantly greater than what you have seen in previous years?

I don't know if I would say significant. It was noticeable, so that is why we commented on it. But the pipeline is also has been relatively empty. But we have definitely seen an uptick in buying.

Okay. As far as your comments about your view on corn planting, I believe on Q3 call, I want to say -- I can't remember exactly, but I want to say you said in the 5 million to 6 million decline. Given what corn prices have done over the last couple of months have you modified that view?

We look at it regularly, but I would say that is really pretty close to the range. We are thinking, 5 to 7 million acres lower. We know -- in our region we know we planted more wheat, so that is a certainty, so that comes out of something. Soybean prices are really strong. Wheat prices are strong. But corn prices are strong. So there is going to be -- those crops are going to continue to gain some ground. We are highly confident beans will gain back some acres this year. So let's just say we're still in the same range.

Okay, because (inaudible) country?

Yes.

Okay. Speaking of wheat, was there any wheat that you own outright, i.e., fixed-price where you could sell at current prices and reap a windfall? Do you own any grain outright like that or is it all on hedged or live contracts?

We are principally -- we have stated this before -- Andersons -- and actually Lansing is principally this way too, although they have more emphasis on trading -- overall trading. But we are principally a hedger offsetting flat price risks. And we are willing to trade in the spreads. One, to capture space income and, two, where we see speculative opportunity. And as a result we don't, as a matter of course, have unhedged inventory of any consequence. We do have substantial hedged inventory in Toledo, which we're very happy that we have. And last year the wheat market did provide some nice opportunities in the area of trading spread relationships, which we were able to take advantage of some of that.

Okay. And did you increase your position in Lansing this year?

Well, we are planning on it. We have not done it as yet, but we will be increasing our investment in Lansing for 2008.

And I cannot remember how much your able to add a year, but are you going to go over majority ownership this year?

Probably not.

Probably not? Okay, well my final question is, on DDGs do you hedge any of those?

I will tell how we handle it. We look at roughly for every ton of corn you put in, you have got one-third of a ton or so of DDG coming out the back end. And DDG is really, really tracked with corn price. It has been 105% above corn on a per ton basis, 80% on the low side. So it moves at a pretty good relationship with corn. So what we actually do is we in essence hedge the DDG by not quite hedging as much corn when we buy the corn. So if we're going to want to take a position in corn of 1 million bushels, we actually will only flat price a portion of that with the price that we are not -- the portion we're not placing, in essence relating to the DDG that we will have on the back end.

So the point being that DDGs have gone to call it 170 to 188 a ton. We should assume you're going to see the 170, 180 a ton, and you did not lock in at some lower priced?

Well again, let's just say we were buying 1 million bushels of corn because we're going to consume it. We could do two step transactions. Flat price 1 million bushels of corn and then sell one-third of that. But we do it in a one step transactions and only price roughly two-thirds to 70% of the corn. So in essence we hedge the DDG in corn at the time we're buying corn and selling ethanol. When we're doing the complete what we call crunch, in essence buy corn, either flat price futures derivatives, sell ethanol, either cash or derivatives, buy natural gas, cash or derivatives. And in essence we're hedging the DDG by not quite buying as much corn. So we are locking -- when we can, we lock it all up together.

To the extent we're more in this spot market then obviously that is not the case, then we're selling it at the spot, but we are buying corn in spot when that occurs.

Farha Aslam, Stephens.

Congratulations on a great year. Starting with your Plant Nutrient, volume this year were up 40%. Mike, could you give us some color as to what you think volumes will do in 2008?

Yes, and a little color on the 40. And I don't remember the exact statistic, but from '05 to '06 we had a drop, and then we went back up. So if we went back to the '05 year, it is not up quite as much as 40%, but it was a really, really nice increase. And we're gratified.

We think that this year a couple of things. One, if corn acres are lower, which we project, then we would have -- and we get 2.5 times the nutrient put on corn versus soybeans, that reduction in corn acres will then have a simultaneous reduction in nutrients. So we should see, if we are down 6%, 7%, 8% in corn acres, then we would expect a little volume decrease.

I also think that -- I don't know how big this is going to be, but especially on potash and phosphates I think that we could see, given the price activity, that we could see some decision-making about maybe some modest reductions in usage. And I don't have a good feel for that to tell you the truth. That is going to come at the time the farmer is planning. So we expect volume.

But although you did not ask this, for anyone following the fertilizer market in January -- price market, we have had pretty substantial increases again in the price of nutrients. As you know, we tend to accumulate inventories given the sizable investment we have in storage space. So that, assuming the prices would stay high, that would be to our advantage.

So do you think the advantage would be as much as you saw in (multiple speakers)

I'm really not surprised you asked that, but I'm not going to try to speculate on that right now. But we have got a nice -- we have got one thing leaning us down a little and one thing leaning us up.

And then moving on to your grain business, you have changed the way you purchased grain for your elevators, given the current commodity cycle. Could you share with us how that might impact sales or profitability of that business?

Yes, what we're doing with a highly escalating corn prices -- for anyone who has followed us, we often buy grain out as much as three years ahead in various types of cash contracts that we have. And with the escalation in grain prices and the resulting impact on margin cost, and our view in point that, at least right now, we view this escalation -- nothing lasts forever, but this is a little different than just supply induced price movements. There is real demand coming from China, India, demand for protein, biofuels and what not.

We're putting a governor on some of the forward out purchasing and slowing that down, either from in some cases saying we will not buy way out there, or it is has go through certain approval processes, and we're adjusting fees depending on that. We're making very few adjustments in the current crop year we are, that would go through -- when I say current crops year I'm talking the 2008 year. So that would be fall 2008 through the following year. So as we have made very, very minor changes, other than I would say maybe a bit of a governor.

And actually there's some interesting opportunities in buying right now that come from -- take $5.00 corn. If you really understood the crop insurance business there is opportunities for farmers to lock in crop revenue at reasonable rates, say at 85% of the corn price or $4.25, to give them both yield and upside protection. So we're emphasizing that more right now.

So I don't think our changes should have a dramatic -- that should have very little impact over the next year and a half. And I don't think they will have much of a long-term impact. Frankly, most of the industry is taking a look at the buying practices and hedging practices given the dynamics that are going on right now.

And, Mike, you often give us color on the basis. It currently it looks like corn is average but soy and wheat might be low basis compared to historicals. Can you give us income opportunities in the various crops right now?

Corn basis is pretty strong. And with this recent -- this last week escalation in prices it has dropped off just a little. But it is staying reasonably strong. And with the ethanol plants that are in place and new ones coming on, despite the fact that we are projecting a reasonably sized carryover this year with the prospect of lower acreage and the ongoing demand, we would expect it to stay strong.

Frankly, wheat which was pretty low basis for years has now moved back to where it has converged with futures, and is trading I think at levels that would be more historically normal for this time of the year, and are relatively good in the old crop. That is in soft red wheat. Their basis levels are through the roof for certain types of wheat like Minneapolis wheat, Durham wheat, high-protein hard wheats, because there's just a flat-out shortage of those.

As you look to the new crop though wheat basis is really, really cheap -- soft wheat basis -- because of this huge crop that we have coming on. And that bodes relatively well for us to be able to accumulate some good levels. Soybean basis on the other hand is really, really low, which means that as you bought stuff that has been bought before that you are selling today, it is moving through with less appreciation than we typically would expect.

And I think that is interesting, given the fact that we're projecting an extremely tight carryover. I think it is responsive to the fact that at these prices farmers are selling aggressively. Elevators are selling aggressively to not own such high-priced inventories. And we have South America coming at us. So the bean carry opportunities are not as significant, but corn and wheat for the Andersons are kings when it comes to space income, and we're feeling pretty good right now.

Okay my final question and I will pass it on. Can you give us some color on your Greenville plant in terms of your hedging opportunities there, and how much you are able to sell forward?

I will. I might as well talk about Albion and Clymers too. We had said before that we're substantially hedged at Albion and Clymers on the major inputs and outputs. And at reasonable levels, albeit, at the time that we look what the hedges on, and we have talked about this before, the corn market we had to pay carry or higher prices than the spot at the time. And the ethanol we had to sell at discounts because it was inverted or contango as they say.

For 2008.

For 2008. Very little for 2009. At Greenville, by the time we've put that whole LLC together the market had already move substantially in corn and ethanol. And we elected not to put stuff on ahead. We have a very small, as we are now in the -- about to open -- we have a very small amount looking out the next month to that we have locked in. So we have substantially -- we have a substantial amount of this year's yet that we have to buy the corn and sell the ethanol. And for anybody watching it, the forward margins are not very healthy in ethanol right now, although the spot margins have continued to show positive returns.

(OPERATOR INSTRUCTIONS). [Brian Milburg], Piper Jaffray.

Great quarter and year guys. I got to move myself up higher in the call. All the good questions have been asked. I guess one thing I would like to talk about is you mentioned this market share issue with the fertilizer. Can you tell me a little bit about that? How you achieved that? Is that just in the Southeastern portion there or the Ohio, Tennessee area or --?

We are primarily, our footprint is facilitywise is Ohio, Michigan, Indiana and Illinois. And we do some business in the states that touch those states I mentioned. And we have had a long-term focus to work to try to gain market share with our customer base. And it is relatively -- it's not like we're gaining large amounts every year, but we continue to keep meeting our objectives. And that has been really additive. We were blessed, if you look at the past year, if you looked over our history there are some years where our big storage -- investment storage space has not always paid. This past year it paid substantially, both from the fact that we had value of inventory go up, but also it gives us the ability to position product ahead of time. And when there is allocations and shortages, it tends to play to our advantage because of the ability to increase our inventories ahead of time. So we won on both of those fronts.

And so the market share gains are in our existing territories, as opposed to in new territories. Gary, did you want to add anything?

Yes, we have got great relationships with our suppliers. And obviously if you don't have that, that will get you into a position where you're going to suffer with your supply-side. So we work with both the suppliers and vendors, as well as the customers, to satisfy the market.

Okay, and then one last question. Because of the severe weather in the Tennessee, Kentucky, Southern Ohio area is that were you see most of the corn shifting or -- what is your thought about that?

No, actually -- when you say corn shifting, I'm assuming you mean reduced acres.

Yes over to soybeans or to even cotton maybe.

I think that, as you look at the Southern acres the weather we've had now, by the time we get to planning I'm going to assume that most of that impact will have abated. And I think you're going to get down to -- if you look in our territory which was drier last year and yields were a little lower in parts of Ohio and parts of Michigan, with higher nutrient prices and the bean price you might see suddenly a little more shift.

But in general I think that you will see areas that added corn last year, that farmers will proportionally just shift a little bit more to beans and a little bit out of corn. So I don't think you're going to see huge mass of acreage shifts. And some of what you saw in the South last year, maybe you will get a little bit more shifting back in that area. But I think it's going to the party proportional.

(OPERATOR INSTRUCTIONS). Charlie Rentschler, Wall Street Access.

Mike and Gary, with the planting attention for corn down, but demand expected to rise, especially given 50 or 60 new ethanol plants coming online this year in the United States that might require another 2.2 billion bushels I'm going to guess, and as you say some carryover at the end of the last fall, what is your expectation for corn prices this year? And how does higher corn prices flow through and affect the Andersons in different ways?

Okay, that is a good question. Because Charlie, what you have teed up is this likely reality coming at us that we are going to need either more corn acres than we're going to have -- likely have in '08 as we look out to '09, or we're going to have to have continued yield increases, or both. Or we're going to get acres that are going to be able to show up, which could be more acres. And I will put in my plug for freeing up some of the Conservation Reserve Program acres.

So we are going to -- as you look out to 09, we're going to need to get acreage back up based on everything I think we can see in front of us today. As far as high prices go for us, obviously that means that we have to finance higher priced inventories, whether it is corn, wheat or soybeans. It puts more demand I would say on our short-term lines of credit just for the base value of inventories. To the extent that prices stay -- like here recently we have had the reality of having to increase our short lines to support escalating prices to support margin calls in a huge number of dollars.

Now if we assume that prices are high and don't go substantially higher than there, then we maybe won't have quite the impact on the maintenance margin. But it is -- for us the high prices just mean we need more cash to keep fueling the business we have. What it does do for our customers it tends to create a healthy net income situation at the farm level. And I think we all end up benefiting from that.

But what about the impact on your ethanol business? I mean I don't see any alternative but corn prices to just keep going higher and higher. I mean maybe they will go to $6.00 or $6.50, or heaven knows where they can go. But what if along with that you have gasoline prices drifting down because of recession covering more and more of the country, and where does this leave the ethanol guys, including yourself?

I guess I'm not surprised you came back with that. And you notice I did not answer that in your first question. I think in the end if you kind of calculate -- let's start with -- to the extent there are mandates. And I'm not sitting here necessarily as a proponent of mandates, but to the extent they are, that can cause what would be viewed as uneconomic actions to happen to fulfill the mandate. So put that aside.

In the end, if we get into a situation like you're talking about, $6.50, $7.00 corn, if gasoline prices would -- it's not just gasoline prices drifting lower. You're also talking ethanol prices. I think we still have the ability to work substantially more ethanol into the market to get up to at least 10% in the United States, which would be roughly 15 billion gallons. And economically that should be able to be supported at roughly $0.40 premium to unleaded gas. And today ethanol is trading at a discount to gasoline. So gasoline can go down and ethanol can go up. But with the amount of ethanol plants coming onstream quickly of course I think that is why we have prices like we do.

I was going to say that in the end, if you have economics driving it, and you look at the impact of $1.00 increase in corn, what that does to your variable cost for producing a gallon of ethanol, then you look at it for what it does to your variable cost for producing a pound of the beef or a pound of port or chicken or eggs, it is pretty easy to I think conclude that you will keep putting corn to feed before -- and you will slowdown or shutdown ethanol plants before you will dramatically shutdown feeding. And I think most of us would prefer to eat first.

So I think kind of the dark side of ethanol is that combination of what you're talking about Charlie. It is just that simple. On the other hand, we have shown an amazing ability to get yield increases. I think that is going to continue to occur. I will mention the CRP again. That was put in at a time when we had low grain prices and we were moving out of paid set-asides. There is an environmental element to it. There still is. But there's a substantial amount of land out there that all of our are paying for that is not in production that I believe could be put into production. I think that is terribly unfortunate, especially given a situation like you're describing. So I would hope that at some point in time we will see the productive amounts of those land come back into production to help mitigate the risk that you laid out.

Yes, but I think with -- where did we go, 13.2 billion bushels of corn last year, and the carryover was 1 billion something or 1.5 billion. But you have got these ethanol refineries coming online this year that will produce I think 4.8 billion gallons of ethanol. That takes about 2.2 billion bushels of corn. So against last year's production you're talking 15, 16% increase just to feed the incremental ethanol plants coming onstream. And certainly yields are not going to jump of like that year-over-year. There is no way possible. But anyway, well I guess --.

I get your point.

Brian Milbury, Piper Jaffray.

I just wanted to cover the retail briefly. First of all, I think that your store year-over-year was actually pretty good considering the retail sector right now. So even though it was slightly negative, I think that is a pretty good accomplishment guys. But I was curious how the food business is doing at your food market?

Yes, I think we are pretty sure we said before that it started slower than we had anticipated. And we have obviously -- I think we opened in May, and had start up cost, and we're anticipating losses. And it was worse than we expected. We are making significant -- we have made right towards the end of the year, and are doing it right now, significant changes in the product mix and focusing on customer experience.

I think we made our food store -- it is a beautiful store, but I think we made the food part of it too much like the food areas in our existing stores. And as a result some of the changes that we are making, we're seeing increases in daily sales and customer counts. But frankly we have got a ways to go. It is a pilot. I'm proud of what we're trying to accomplish here. And we're going to see over time whether we have got something or not.

And then can you give us a little more color on this impairment, how much of that was related to the food market and the stores?

Yes, that was related to the food market.

Farha Aslam, Stephens.

Could you share with us some color on rail in terms of where rail lease rates are going today, and kind of your outlook for capacity utilization going into next year?

Yes, rates are relatively -- the rates that we're experiencing in our leasing year-over-year are relatively stable and flat. I would say maybe the market is down just a hair. We're having pretty good success in re-letting cars. We're in that 93% utilization. And we focus on that substantially.

We have seen for the first time in quite awhile in January, a modest uptick in carloads on railroads. So I think -- you know our position is in the used car space, and we have the ability -- in managing that. We have the ability to, I would say, to be aggressive in making sure our cars are placed. And we're going to do our doggonest to see that that happens.

We were able to pick up a few more cars last year. I'm expecting, with rates generally below levels that support new car replacement -- that is a generalization depending on car type and the industry, that is not necessarily true. We're now starting to get into that. And we're coming off of a long leadtime. We still have new cars that were coming onstream that were ordered a year ago or two years ago. But we are starting to move into that phase where we will likely be scrapping more than we add on.

So I think we are -- in my opinion, a generalization and maybe car type by car type this vary, or by industry. We are feeling pretty stable right now. I'm hopeful, we're hopeful, our team is hopeful we're going to have the opportunity to be able to grow the fleet here, given these circumstances like we were the last time that we were, I would say, off the highs.

The scrapping comment has to do with the industry not the Andersons.

Thank you Gary. The scrapping comment has to do with the industry, where we would -- there are those periods where you're adding more cars every year than the industry is scrapping, which grows the fleet. And then you tend to go into a period where the opposite happens. And I think we're about to enter into that period.

I'm feeling pretty good about the position we have in here. We mentioned the maintenance again. That is in the ongoing thorn in the side of just the profitability. And we're going to look to continue to expand our railcar shops. So I like the position we have got.

Great. And you did not sell any rail cars during the quarter, just to confirm?

No, it was limited.

I'm just going to make sure. Yes, it was minuscule, not noticeable. (inaudible) little blips. So basically not.

And so going into next year would you anticipate being able to deliver at least flat earnings, given that you will have higher number of railcars?

You know, there is some elements to the railcar business that are run-rate like in -- with the lease, and that element I think I feel pretty good about. Our manufacturing shops, we had a down year. I would expect we could do that or better. But we did for the course of the year, I think, we have roughly $8 million in gains on sales. And so that is a quarter to quarter, month to month, year to year and opportunity by opportunity situation. So I'm not going to sit here and predict what we will or won't do on that particular component. Every year it seems some opportunity comes up, but it is hard to know exactly how much we will do.

We're continuing to look for opportunity to grow it, and we're also expanding our shop operations as well.

At this time there are no other questions. I would like to turn it back to management for closing remarks.

Thank you. Thanks for being with us. I appreciate your interest and your questions. Our next conference call is scheduled for Thursday, May 8, at 11 AM Eastern time to discuss and review our first quarter results. As you recall, we did not provide guidance on the first quarter, given the important -- in this quarterly call, annual call. We do it at the end of the first quarter because of the importance of the spring season, and allow us to see how things are shaping up. So that would be our intent at this time. So again thank you very , and we will see you all