Andersons Inc (ANDE) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter 2012 The Andersons, Inc. earnings conference call. My name is Deanna and I will be the operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Nick Conrad, Vice President of Finance and Treasurer. Please go ahead.

Good morning, everyone and thank you for joining us for The Andersons, Inc.'s 2012 third-quarter conference call. We have included a slide presentation that will enhance our talking points this morning. If you are listening and watching this presentation via our website, the slides and audio are in sync. For those listening via telephone or watching the webcast, you need to follow directions sent to you in order to sync the slides and audio. This webcast is available through the Investors section of our website, www.sndersonsinc.com. The webcast is being recorded and will be available on our website.

As you know, certain information that will be discussed today constitutes 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, competitive conditions, conditions in the Company's industry, both in the US and internationally and additional factors that are described in the Company's publicly filed documents, including its 34-F filings and the prospectuses prepared in connection with the Company's offerings. It also includes financial information, which the Company's independent auditors have not completed their review of yet. Although the Company believes that the assumptions upon which the financial information and its forward-looking statements are based are reasonable, it can give no assurance that these assumptions will prove to be.

On the call today with me are Mike Anderson, Chairman and Chief Executive Officer; Harold Reed, Chief Operating Officer; and John Granato, Chief Financial Officer. Mike, Harold, John and I will answer questions you have at the end of the prepared remarks. Now I will turn the floor over to Mike for an opening comment.

Thank you, Nick. The Company had a strong quarter. The Rail Group had record quarterly earnings for the third quarter in a row. The Grain Group also did well as it benefited from an early harvest and record earnings from its investment in Lansing Trade Group. The Company paid its 64th consecutive quarterly dividend on October 22 of $0.15 per share.

Before we review the performance results, I would like to specifically highlight some accomplishments in 2012 that demonstrate the Company's continued commitment to growth. The Grain Group announced last week that it intends to purchase the majority of the grain and agronomy assets of Green Plains Grain Company, LLC. This purposeful expansion in our core operating space will be the largest acquisition in the Company's history and will include seven facilities in Iowa and five in Tennessee with a combined grain storage capacity of approximately 32 million bushels, dry fertilizer storage capacity of 12,000 tons and liquid fertilizer storage capacity of 18,000 tons.

In September, the Grain Group also opened its 3.8 million bushel unit train loader in Nebraska. In May, the new ethanol investment affiliate, The Andersons Denison Ethanol LLC acquired an existing 55 million gallon ethanol plant in Iowa that also included a 2.7 million bushel grain elevator. The Plant Nutrient Group acquired New Eezy Gro, an Ohio-based specialty agricultural and industrial nutrient company, earlier this year. This group also completed a major capital build this year in its Maumee, Ohio location that improved both its formulation capability and efficiency.

The Rail Group has expanded its fleet and its railcar repair business this year and has also just broken ground on a state-of-the-art railcar blast and paint facility in Maumee, Ohio. The Turf & Specialty Group also just completed an acquisition of Mt. Pulaski Products, which will allow that group to double the size of its cob business and increase sales of its proprietary products. This is a long list and we are continuing to explore additional expansion and acquisition opportunities. I will now turn this over to John who will provide details of the total Company results.

Thanks, Mike. Good morning, everyone. The Company generated net income attributable to the The Andersons, Inc. of $16.9 million in the third quarter, or $0.90 per diluted share on revenues of $1.1 billion. In 2011, net income of $10.9 million was reported, or $0.59 per diluted share on revenues of $939 million. Through September, total [new add] income stands at $64.5 million, or $3.43 per diluted share. In 2011, net income for the first nine months was $73.4 million, or $3.92 per diluted share. Total revenues through September were $3.6 billion and $3.3 billion for 2012 and 2011 respectively.

Now to a non-GAAP measure, EBITDA, earnings before interest, taxes, depreciation and amortization. EBITDA for this quarter was $44.3 million, which was up $13 million from the same period in 2011. The third quarter's pretax earnings included $6 million in equity and earnings of affiliates, a decrease of $3.7 million from the same period last year. This was a result of a $6.5 million decrease in income from the Company's investment in its ethanol LLC, which was partially offset by a $2.7 million increase in the investment income from Lansing Trade Group.

Through September, the Company's EBITDA totaled $152.7 million, a decrease of approximately $12 million from the same period of 2011. Equity in earnings of affiliates through September totaled $15.4 million compared to $29.5 million for the first nine months of 2011. Interest expense for the third quarter 2012 totaled $5.5 million, down $200,000 from the same period of 2011.

Through September, the Company's interest expense totaled $16.2 million, down $4.4 million from last year. Third-quarter short-term borrowings increased $218.1 million in comparison to the prior year. During the third quarter, the Company had short-term investments averaging $14.8 million.

The Company's effective tax rate for the third quarter was 37.6%, up 9.1% from the prior-year rate of 28.5%. The increase in the effective tax rate was due primarily to lower benefits related to domestic production activities and to income or loss attributable to the noncontrolling interests that do not impact income tax expense. The Company is projecting a 37.7% tax rate for 2012. The Company's actual 2011 effective tax rate was 34.5%. The rate differential from year-to-year is due to the same reasons noted for the quarter.

The bridge in this next graph demonstrates which group's income is up or down this quarter in comparison to the prior year. The specifics behind these differences will be detailed as each group's operating performance is discussed. Therefore, to better understand the total Company results, Hal will walk you through each of the six business groups. Hal?

Thanks, John. Let's start with the Grain Group, which reported operating income of $10.8 million this quarter versus $8.3 million a year ago. The group benefited from an early harvest, which resulted in higher gross profit on sales in comparison to the prior year.

Space income was down considerably for the quarter as expected. Group benefited this quarter from record earnings from its investment in Lansing Trade Group. Grain Group revenues for the quarter were $677 million, which is up from the $539 million reported in the prior year. This revenue increase is due primarily to an increase in the number of bushels sold and was also impacted by an increase in the average price per bushel.

The Grain Group's operating income through the first nine months of 2012 was $45.5 million on revenues of $2.1 billion. Comparatively, the group's operating income through September last year was $60 million on revenues of $2 billion. The year-to-date numbers are positively influenced by the consistent results of Lansing Trade Group this year. Conversely, space income in 2012 is substantially lower than 2011 as the wheat space income received last year was not typical.

As of the 5th of November, harvest for corn and soybeans is 95% and 93% complete respectively. In comparison, the harvest was later last year. Corn was 85% harvested and soybeans 91% harvested at the same time. You can see the early harvest reflected in both the Grain Group's financial results and in the bushels in inventory as of September 30, which are up 29% in comparison to the prior year.

Now let's discuss the Ethanol Group, which had an operating loss of $900,000 this quarter. In comparison, the group had $4.4 million in income during the same period last year. The lower income is the result of decreased earnings in the ethanol limited liability companies. The LLCs continue to be negatively impacted by lower ethanol margins resulting from increased corn costs and lower demand for ethanol in both the US and export markets.

Revenue this quarter was $210 million, up from the $179 million for the same period last year. This revenue increase was due to the addition of the Denison, Iowa ethanol plant in May 2012. Through September, the Ethanol Group has reported an operating loss of $2.9 million on revenues of $528 million. In 2011, the group's operating income for the same period was $16.8 million on revenues of $477 million.

During the first nine months last year, the ethanol LLCs benefited from favorable margins, which has not been the case this year. Partially offsetting the group's lower margins are service income and income from co-products such as E-85, DDGs, corn oil and CO2. During the latter part of September, the Ethanol Group shut down both the Clymers and Greenville plants for five days each as spot margins weakened to where variable production returns fell below variable costs. The Ethanol team continues to monitor shutdown economics by plant and will make those hard decisions if and when it is deemed necessary.

The Plant Nutrient Group's third-quarter operating income was $800,000 on revenues of $135 million. In the same three-month period of 2011, the group reported a $6.6 million operating profit on $138 million of revenue. Volume increase modestly in the third quarter in comparison to the prior year. Margins in the third quarter were solid and more in line with historical norms, whereas the prior-year margins were significantly higher primarily as a result of nutrient price appreciation.

The group has appropriately managed its nitrogen, phosphate and potassium ownership position going into the last quarter of the year in order to reduce the risk of lower of cost or market losses. This year, the Plant Nutrient Group has earned operating income of $34.5 million through the first nine months on $619 million of revenues. Last year, the group generated operating income of $35.8 million on $521 million of revenue. This year-to-date revenue growth is due to both higher volume and an increase in the average selling price.

The Rail Group reported record operating income of $19.1 million this quarter on revenues of $60 million. Last year, the group reported $1.1 million of operating income on revenues of $24 million. Revenues were up this quarter due primarily to the increase in nonrecourse transactions. This is when we sell cars to a financial company and then provide car management services to the purchaser.

In these types of transactions, we typically hold an option to purchase the railcars back at the end of the assigned lease period. This quarter, the group recognized $13.5 million in gains on sales of railcars and related leases and nonrecourse transactions, which is significantly higher than the $700,000 recognized last year for similar transactions.

Gross profit from the leasing business was significantly higher due primarily to an increase in the average lease rate, which has risen in each of the last six consecutive quarters. The average utilization rate for the quarter was 84.3%, which was down slightly from the 85.1% reported in the third quarter last year.

Through the first nine months, Rail Group has record operating income of $34.3 million and revenues of $128 million. In the same period of 2011, operating income amounted to $7.4 million and revenues were $82 million. These results through September include gains on sales of railcars and related leases and nonrecourse transactions of $22.2 million. This compares to $7.7 million for similar transactions during the same nine-month period of 2011.

The year-to-date results for the rail repair business are more than double the 2011 results. The group has approximately 23,400 cars and locomotives, which is up approximately 1100 cars from its year earlier total. The utilization rate as of the end of September was up slightly from -- it was 84.5%, up slightly from the quarter average of 84.3%.

The Turf & Specialty Group had an operating loss of $1.6 million this quarter on revenue of $22 million. Last year, the group reported a loss of $1.2 million on $23 million of revenue. Turf product tonnage was down and margin per ton decreased slightly due to product mix.

The cob business this quarter continued to show good profitability as a result of increased sales of its patented products. With the acquisition of Mt. Pulaski Products last week, the cob business has now doubled their capacity, which will allow for increased sales of its proprietary products. Through September, the group's operating income was $3.4 million on $110 million of revenue. In the same period of 2011, operating income was $3.8 million and revenues were $112 million.

The Retail Group had an operating loss of $1.8 million on revenues of $35 million in the third quarter. In 2011, the group had an operating loss of $1.2 million and revenues of $36 million. The group's year-to-date operating loss is $3.1 million on $110 million of revenues. Through the first nine months of 2011, the operating loss was $2 million and revenues were $112 million. The group's customer accounts have decreased slightly; however, the average sale per customer has increased slightly. Now, I will turn the floor back to Nick for the Treasurer's report.

Thanks, Hal. Turning to the balance sheet, net working capital at September 30 was $253.4 million, a decrease of $62.5 million from last year's third quarter. As of September 30, current assets totaled $1.2 billion, an increase of $321 million from September 2011 ending balance. This change was driven primarily by an increase in inventories of $682.3 million as of September 30, a net increase of $224 million over September 30, 2011.

Increases in Grain Group inventories accounted for the majority of the increase. In addition, there were increases in cash and cash equivalents of $30.1 million, accounts receivable of $40.4 million and commodity-driven assets current of $23.3 million.

Under current liabilities, borrowings under the short-term line of credit as of September 30 were $275.5 million compared to $105 million at the same time last year. Total assets as of September 30 were $2 billion, an increase of $532.9 million from the 2011 third-quarter ending balance.

There have been significant additions to property plant and equipment in 2012. The Company has spent a total of $93.1 million on business acquisitions for the nine months ended September 30. Other capital spending on property plant and equipment through third quarter 2012 totaled $57.8 million versus $29.6 million through 2011 third quarter.

Railcar purchases and sales were $102.9 million and $57.3 million respectively through September 30. Railcar purchases and sales for the same 2011 period were $38.4 million and $19.8 million. Long-term debt totaled $312 million at the end of the third quarter, an increase of $76.7 million from 2011's third-quarter ending level. Our total long-term funded debt to equity was 0.52 to 1.

The Company's third-quarter 2012 average interest rate for all long-term debt was 4.5% versus 5.4% for the same period in 2011. Year-to-date September 30, the average long-term interest rate was 4.9%, which is down from last year's rate of 5.4% for the same period. Internal equity on September 30 was $602.4 million, an increase of $70.4 million from the same period last year.

Finally, we continue to see good support from our banks. As of September 30, the total lines of credit available under the Company's syndicated facility were $850 million, $735 million of which was short term and $115 million of which was long term. We continually monitor our current and future borrowing needs and at this time feel the existing lines of credit are adequate.

Each of the recent periods of grain price volatility have played out differently in terms of influencing our borrowing needs. We are pleased that our existing line has been and continues to be more than adequate. Mike will now cover a few more points before we take questions.

Thanks, Nick. As noted in the press release, we had a good quarter. Our expectations for the remainder of the year, however, are still tempered by the drought, which will continue to impact the results of both our Grain and Ethanol Groups through the first half of 2013. Further, some of the operating profit that would typically be seen in the Grain Group in the fourth quarter was recognized in the third quarter due to the early harvest.

Last quarter, we told you to expect our Grain Group to have a loss in the third quarter due to an anticipated decline in space income. We were right about the decline in space income, then ended up with higher profitability due to the early harvest and significant positive performance of Lansing Trade Group.

In addition, all of the one-time costs associated with the acquisition of Green Plains Grain Company, LLC will be expensed in the fourth quarter. Due to these factors, we now expect the Grain Group's fourth-quarter earnings to be significantly below the prior year's results. We expect the current situation in the Ethanol Group to continue and therefore, we expect the group to have a loss in the fourth quarter.

Due to the continued good leasing environment, we anticipate the Rail Group's base business in the fourth quarter will be substantially higher than the prior year, but we would not expect gains on sales to be anything like the third quarter.

The Rail Group has done a great job this year optimizing and managing their fleet portfolio. For the other three groups, we expect more typical fourth-quarter earnings. During the second-quarter conference call, I gave you a detailed outlook for the first half of 2013. I want to reiterate a few key points that I previously mentioned. First, we continue to feel that space income and bushels handled in the Grain Group will be down the first half of the year due to the drought. Conversely, the dislocation and disparity of supply and demand could allow favorable arbitraging and merchandising opportunities for both us and Lansing Trade Group.

You have seen in 2012 that Lansing Trade Group can profit from a volatile market based on their business model. We still anticipate the Ethanol Group having a tough first half in 2013 as a result of an oversupply of ethanol and because of the drought, which has led to high corn prices and regional corn shortages. We feel that next year the industry could be dealing with periodic shutdowns of plants that are poorly positioned and local corn supply shortages or have other operating and margin challenges. We will continue to consider the cash flow provided by the ethanol business when making decisions in regards to the Ethanol Group.

We remain bullish on Plant Nutrient volume and margin as we look to next year. It's possible we may see another record planting year for corn and that would be quite positive for us.

In addition, the outlook for our Rail Group also looks quite good. It is important to note, however, that this first-half 2013 outlook is based on our informed opinions. Of course, actual outcomes can vary based on numerous variables.

I would like to end by simply saying how pleased I am with our Company's performance, especially given the drought that has impacted our earnings. Our purposeful growth in fundamental industries for the last five years has demonstrated our ability to make good investments, appropriately integrate them into our Company and grow our income as a result. We realize our full-year earnings in 2012 and 2013 will be impacted by the drought. However, our recent and planned growth has the potential to allow us to achieve new earnings records in the future.

That concludes our prepared remarks. Hal, John, Nick and I will now be happy to answer any questions you may have. So Deanna, we will turn it back to you.

(Operator Instructions). Heather Jones, BB&T Capital Markets.

Good morning. Congratulations on that quarter. I have a number of questions, but I wanted to start with Rail. Mike, you mentioned that you don't expect gains on sales to approximate what you saw in Q3 going forward. But year-to-date, like you noted in the press release, gain on sales have represented two-thirds of Rail earnings. Whereas if we went back and looked at other years, and some years, it is more like a third to 40%. So when you say you don't expect it going forward to approximate Q3, are we going to get back to normal levels or is it going to still be elevated but just not to the extent of Q3?

Heather, this is Hal. How are you?

Good, how are you?

I am good, thanks. Thanks for the question. Yes, clearly, Q3 is an outlier I mean if you look at all kinds of history. So Q3 was the reference point and we certainly don't expect that kind of a level to continue. We do expect there to be normal opportunity in the business going forward as there has been much more activity as the economy has picked up in the last year. So Q3 a bit of an outlier, but a normal level of activity is what we would expect going forward.

When you talk about 2013, continued strength in Rail, I mean if I take out the year-on-year change in gains, obviously year-on-year improvements and the rail repair, rail leasing has been strong. So when you're looking at 2013 and talking about a strong year, we are talking about more like '07, '08 type strong years or are we talking about a repeat of 2012?

The leasing business has been on a strong increase. Our numbers of cars have increased, our lease rates have gone up. So the base leasing, business which is there month-to-month, has shown strong and steady increases for a number of quarters. That clearly is on the upswing. We expect that to continue. We do not expect, like I said, the third=quarter profits and loss to be quite as it was, but the opportunities from financing are probably above normal at this point in time.

There has been a bit of pent-up demand in the last couple of years as the industry has contracted a bit. So we are expecting to see the base business pick up and as we said, we have grown that rail repair business over the last few years and at this point in time, it has more than doubled the previous year. So we expect that to continue to grow as well.

Okay. Going back to the comments on -- let's talk about Q4 first. Down substantially and when you talk about Grain Group, are you including Lansing in that or are you talking about just Andersons' Grain Group?

That is including both.

Okay, and down substantially. I mean do you define 10% as substantially or is substantially -- I guess some color around that.

Yes, I am going to add a little. In the last quarterly conference call, we indicated we thought we could be reasonably close to a year ago and I am not going to define a percentage with that, but when you look at -- and we also said we thought we would have a loss in the third quarter and it turned out we had a profit in that quarter primarily because of movement from fourth to third. So you take movement from fourth quarter to third quarter, you take less bushels, less carry, you take -- we've referenced the expenses that we will incur with Green Plains. We used investment bankers, so a little bit more than normal substantially would be quite a bit more than 10% drop from a year ago for the group in total. We won't give more color than that.

Okay. Going back to your Q2 call, I think if I remember correctly you all had thought that maybe the situation with carry relationships in the futures market would improve and it doesn't look like it has improved that much. I mean is it fair to characterize that as worse than you all had originally thought?

Well, first of all, I think the front-end wheat market carry has clearly improved and some of the deferred spreads maybe are a little bit less of an inverse, but the front-end carry has clearly improved in wheat. There is a little bit of carry in the front-end corn market at this point in time. So I think probably from the last call, things may be a bit better, but clearly in wheat, they are better. We will have to see how that plays out at this point in time, but at least that one piece is clearly better than what we had looked at earlier.

Okay. And then my final question is you mentioned the dislocation could allow favorable [ARB] opportunities for both you all and Lansing. Do you think those opportunities are enough to offset the negative impact of lower volumes and issues with carry in the first half of 2013?

I would say no. It is unlikely that we could take those and parlay them into the kind of gross profit generated by a big carry market, but it is a reasonable offset to work on.

Okay, all right. Thank you very much.

Ken Zaslow, BMO Capital Markets.

Hey, good morning, everyone.

Hi, Ken.

Can you talk about the VSR and how that will actually impact your outlook going forward?

Yes, the VSR was a very nice benefit over the past couple years. We are down to I believe one tick now, so it is not substantially different from the normal, what people would consider full carry in the futures market. So at this point in time, we don't see the VSR playing a big role probably at least until we see the next crop come off and we see a lot of competition for space. So VSR shouldn't be a very important aspect of it at this point in time.

So when you think about the Lansing earnings, maybe I am wrong, but I kind of -- how I think about it is, every quarter, you have to re-earn -- you basically start with zero and you re-earn a new number every single quarter. So it being a record this quarter, does that give you more confidence or does it change how you think about for next year? I know you guys said that there could be a lot of dislocation opportunities if Lansing can make money, but it is not -- is it earnings on top of what they earned this year or is it a resetting of the numbers for next year? How do you think about that and how should we think about that?

Yes, Ken, this is Mike. Actually I really like that question because it gives us I think a chance to reiterate again the Lansing model, which has got multiple prongs. One, they own grain elevator space, not near as a percent -- I mean a much smaller percentage compared to their mix that we do. This year, they happen to be -- in the facilities that they have in the South and the West and Midwest, they happen to have been in areas that have really good crops. And so that piece of their earning continues strong.

Then they have -- at the other end of the spectrum, they have proprietary speculative trading, which I would say very much is the resetting of the clock and starting over. Mark to market every day and that's a relatively small -- it is important, but a relatively small percent.

Then in the middle you have the bulk of what they do, which is a merchandising supply chain company where they have long-standing relationships developed over the life of their company, which is frankly older than ours -- some of the relationships are older than our Company has been around -- where they are originating grain -- they are the prime originator -- from elevators and from producers and they have long-term relationships with the sell side that they also sell to to manage the freight in between.

Then they also will merchandise and trade and take advantage of spot opportunities in the market, both heavily in the US, but also overseas. So there is an element of that supply chain merchandising that is not starting over. It is to handle the flow of grain and feed ingredients and products from origin points to destination points. Now it is not as if there is a guaranteed built-in margin all the time, but there is a strong element of supply and demand that is a base fundamental piece of their business, which is one of the reasons why you see this ongoing track record of healthy earnings.

Having said that, to the extent that they are on the right side, especially of the basis market, because they do very little flat price trading in that middle piece or the wrong side, that can affect the move up or down from what I will call that mean. But it is not starting over fresh every day.

Okay. So you could actually grow earnings next year in the Lansing Group?

Yes, we have the potential to do that. They have growth as part of their model. This has been through nine months a very good year if I take kind of the base earnings. They have added to that with a lot of good decisions and a lot of good execution and so their ability to repeat next year is a possibility, but I wouldn't sit here and say for sure it will happen. But just really pleased with the job they continue to do in our role being a partner with them.

This may be somewhat of a naive question, I don't know if I can -- but if all your leases -- let's go with the railcars. If all your leases expired today, then you put all your railcars, how many railcars would you actually have? Is that the way to think about how much you can keep on churning some of the profitability? Is that the way to think about it? Maybe I am wrong, but (multiple speakers).

Ken, this is Hal. Just a couple things to clarify. The number of cars in the fleet is 23,400 roughly and so I guess that is the proper answer to your question. But, again, obviously we have got a portfolio approach to all that. And just to clarify maybe two points we discussed earlier, when we do these nonrecourse transactions, as we said in the press release, we typically then -- not only do we have a management contract to provide services, but we typically also have an options still on those cars. So it doesn't go away just because of that transaction. And we do expect financing opportunities to continue to be a bit above normal as they have been this year. So again, I think that is good prospects in that business.

So the 23,400 cars you have, what percentage of those can you resell quarter-by-quarter? Like how do I think about that? I guess, right, that's the way to think about it? Like what can you actually sell of those over the -- it almost seems like, if I had to take a guess, you probably only sold about 100 to 200 cars, if you make about $50,000 to $100,000 on the gain. I guess what I'm trying to figure out is how much of these cars -- how much of this revenue can keep on coming for the next foreseeable future?

Ken, every cycle is a little different. From 2005 to 2008, we had a higher concentration of gains on sale through financings in 2005 and '06 and by 2008, the bulk of the income in the Rail Group is coming more on the traditional kind of spread income. I can't predict what will happen in '13 and '14 and '15, but we feel good about the financing opportunities, as Hal said earlier and I think that continues to be something that is positive for us. John, would you make any additional comments on that?

I would just say, Ken, the way I think about it is it's really a continuous flow of portfolios, which we look at to acquire and then lease and we are also looking at opportunities to finance those portfolios at the same time. So it is very hard to say stop the way you described it. It really is about a continuous flow and I think if you look, we have continued to add railcars to our fleet over time and the vehicles we use allow us to do that by sharing some of the risk with financing partners, as well as continue to make a spread. So hopefully that helps.

I really appreciate it. Thank you very much.

Brent Rystrom, Feltl.

Yes, good morning. Just thinking out loud, from a scenario perspective, from a best case perspective for next year, would a robust recovery in yields be best for your long-term recovery in earnings? Would a rebound, but not certainly a robust rebound in yields be better? I mean how do you view the crop next year and how it will drive second-half and beyond expectations?

Yes, a couple things. First of all, there is the crop side of it and the economic side. Obviously a robust economic recovery helps a lot of things, world demand and a variety of things, but also our Rail Group and the utilization of that fleet. The bigger the crop, the better it is for us in very simplistic terms. So from a plant nutrient side, from a supply and demand, from a carry perspective, you are well aware how the carry markets work, Brent. So a big recovery in the crop and normal weather for a change would really be good.

And then just a follow-up question to that, not a follow-up question, a follow-up question to your comments about the ethanol business and difficulty through summer of next year, which I think is expected and understood. Would it be simplistic to say that the difficulties are toughest for the ethanol business in the eastern corn belt given the difficulty with the drought in that region or is it pretty much widespread as you are looking at your various facilities?

I would tell you it is pretty widespread. The US corn market and the US ethanol market are both very efficient. Transportation and pricing and also into the world market. So I think it is pretty evenly shared. It is based upon having the best operating plant, the better plants that operate well that have the co-products that will offer additional revenues, those are the plants that will do better and that is really the differentiating factor, not quite so much the location.

Yes, I would just add one element to that and it is not as much and East and West, it is more draw a 50-mile radius around any ethanol plant and right in that spot, how good were the yields there because local availability of corn will have an impact on basis and basis variations are going to be much greater this year than normal.

So take Iowa. Iowa has some spots of good production and some spots of terrible production. Take two really good technologically-producing plants and one has got good production nearby, one has got bad and you have got the economics of the corn supply and basis and as Hal said, the ethanol oversupply situation kind of was over all of them.

All right, thanks, guys.

Farha Aslam, Stephens Inc.

Hey, good morning. Can you hear me?

Good morning.

So going back again to Rail, because it has been so exceptional, would you think that the fourth quarter and into next year, like the opportunity set is closer to what you experienced in the March and June quarters of this year -- admittedly, September being exceptionally good -- if we had to think about it?

I will try to reiterate again that we expect the opportunities going forward to be better than normal, all right, for the coming quarters.

But would you say --.

But certainly not as good as the third quarter though.

Yes, but do you think that -- would you say March and June quarters were good or should we expect it to be even better than the first half of 2012?

We would expect them to be better than the first two quarters --

Outstanding.

-- going into the fourth quarter and next year.

Okay, that is very helpful. And then on Grain, admittedly, you have one-time charges with the Green Plains assets, but in terms of Lansing Trade Group, can you share with us was it the early harvest that really drove their results or was it railcars because they do railcars as well? Just some more color about what made the third quarter so exceptional at Lansing.

First, to answer the question, they don't do railcars. They operate railcars, but they don't lease railcars. As Mike said, their locations were probably in some of the better spots possible relative to the drought. That helped them, good large harvests and the early harvest did help them, partially because of the volume but also partially because they take advantage heavily of arbitrage opportunities from their locations and mesh that together with their merchandising business and try to multiply, if you will, the effect of the early harvest and the arbitrage opportunities. So there were a lot of reasons why they had such a good third quarter.

And so Lansing tends to have elevators that are a little bit further south compared to the Andersons core. Did your core Anderson benefit -- how much of it do you think the harvest you took in early in the third quarter versus what you will experience in the fourth quarter?

Well, I think Mike indicated that we had probably a fairly substantial amount of income that moved from the fourth quarter into the third quarter in The Andersons asset portfolio and that was due to the early harvest.

Yes, I am just looking at a couple of statistics. We had about close to 40% increase in sales, bushels sold, this year in the third quarter versus last year and then grain inventory was 55 million bushels on one of the [slides] at the end of September versus 42 million last year. Wheat was in both numbers as a base, but that is kind of -- that 12 million bushel increase, and we were shipping grain too, was indicative of the amount of grain that was coming in. So we have a big increase in bushels handled and the total crop between September to December is smaller. So you can project a disproportionate negative impact for October, November, December.

Okay. And my final question is cash basis opportunities versus your normal carry income. Could you just weigh the two opportunity sets against each other for both the current fourth quarter, as well as going into next year?

Well, again, the front-end wheat market carry is offering some reasonable opportunities more than it has been in the past with the corn carry limited just a few cents, so better than it was early on, but fairly limited. And so the opportunity for carry, like I said, since the last call, has improved a bit and so we are hopeful that we realize the opportunities in wheat and that may continue to roll forward a bit.

But how about the cash? Is there opportunities to --?

There is. Yes, there is clearly opportunities in the cash market and that's these localized supply and demand issues where the arbitrage opportunities and the differentiation between different freight opportunities allows for the arbitrage. So that is the local opportunity. And at certain times of the year, that basis opportunity will end up being clearly more than the carry opportunity, especially on the corn market.

Thank you.

Brett Wong, Piper Jaffray.

Good morning, guys. I just had a quick question. Wondering in the quarter you had a lower utilization of the fleet. I was just wondering why that was.

We added about 1100 cars in the quarter and so some come with leases, some come with work to be done. So it is -- I think it was a relatively minor change in utilization, but that is probably the impact right there.

Great, thanks.

That concludes the question-and-answer portion for today. I would now like to turn the call back to Mike Anderson for closing remarks.

I want to thank you all for joining us this morning. I also want to mention for those that are interested that there are six appendix slides to this presentation available on the theandersonsinc.com website at the Investors tab under the Third-Quarter Earnings Call Replay. Our next conference call is scheduled for Thursday, February 7 at 11 a.m. Eastern Time to review our full-year 2012 results. We hope you are able to join us again at that time. Until then, have a great day.

Ladies and gentlemen, thank you again for your participation. This does conclude today's conference call. You may now disconnect and again, have a great day.