Andersons Inc (ANDE) 2017 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Andersons' 2017 Second Quarter Earnings Conference Call. (Operator Instructions) As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Mr. John Kraus, Director, Investor Relations. Please go ahead, sir.

Good morning, everyone, and thank you for joining us for the Andersons' Second Quarter 2017 Earnings Call. To aid today's discussion, we have provided a slide presentation that will enhance our talking points. If you're viewing this presentation via our webcast, the slides and audio will be in sync. This webcast is being recorded, and it and the supporting slides will be made available on the Investors page of our website at andersonsinc.com.

Certain information discussed today constitutes forward-looking statements and 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 industries, both in 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.

Today's call includes financial information, which the company's independent auditors have not completely reviewed. 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 accurate.

This presentation and today's prepared remarks contain non-GAAP, GAAP financial measures. Reconciliations of the GAAP to non-GAAP measures may be found within the financial tables of our earnings release. Adjusted pretax income is our primary measure of period-over-period comparisons, and we believe it is a meaningful measure for investors to use to compare our results from period-to-period. We have excluded the impairment charge related to our wholesale fertilizer business, as we believe it is not representative of our ongoing core operations, when calculating adjusted pretax income and adjusted net income.

On the call with me today are Pat Bowe, Chief Executive Officer; and John Granato, Chief Financial Officer. Pat, John and I will answer your questions after our prepared remarks.

Now I'll turn the floor over to Pat for his opening comments.

Thank you, John, and good morning, everyone. We appreciate your joining our call this morning to review our second quarter 2017 performance. I'll start out by providing color on our main reporting segments and our strategic initiatives. After John Granato provides the business review, I will conclude our prepared remarks with some comments about our outlook for the balance of 2017.

The second quarter results were mixed compared to the second quarter of 2016. While reported net income was down significantly, adjusted net income was up about 6%. Our grain business results continue to be much improved. And we think we've rebounded from the recent tough market conditions of the last 2 years. Grain fundamentals are improving. We're happy with our grain ownership positions and continue to enjoy wider carrying charges in corn, soybeans and wheat, than we did at the same time last year. Our grain affiliates are also performing better than they did last year.

On the flip side, market conditions and delayed fieldwork in the Eastern Corn Belt hurt our Plant Nutrient business during its most important quarter leading to a very disappointing results. When we last spoke in early May, fertilizer application had been delayed due to wet field conditions in the Eastern Corn Belt. The application delays persisted and this, coupled with soft fertilizer markets, led to reduced volumes and lower margins during the important corn planting season. Value-added fertilizers, which traditionally demand higher margins, were especially impacted.

During the quarter, we undertook a review of the fertilizer business with a focus on value-added fertilizer. We continue to believe that the outlook for value-added fertilizer demand is good. And we can expect value-added fertilizer use to grow faster than base nutrients will grow. The adoption rate of value-added fertilizer will not be as rapid as we're expecting due to lower farmer income and tighter balance sheets.

This learning as well as our difficult recent results triggered an evaluation of the enterprise value of the wholesale fertilizer business. Our analysis indicated that a portion of the goodwill associated with this business was impaired. As a result, we took a $42 million noncash charge in the quarter. The ethanol business was solidly profitable, despite lower year-over-year margins, which were driven by higher industry production and stocks. Vomitoxin and DDGs at our 3 Eastern plants was still an issue, but less so than in the first quarter.

The railcar market seems to be slowly recovering. As we expected a quarter ago, our utilization rate rose compared to the first quarter. We purchased more than 700 cars with leases attached to them, making this quarter the largest quarter in terms of number of cars purchased in 2 full years. We also continued scrapping, mostly older underutilized cars. The combination of these actions has helped us increase the size and the average remaining life of the fleet.

I'd like to update you on our ongoing strategic initiatives, including the closure of our retail stores, productivity and cost-saving efforts, our systems refresh and achieving 0 harm safety culture that are all adding to shareholder value.

We've closed our remaining 4 retail stores. We're working through the disposition of the group's real estate assets. We have already sold 1 of the 4 properties and expect to close on another shortly. We expect to be completely divested of these retail properties by early 2018. We're continuing our efforts to create a productivity culture. We're making good progress on our second $10 million run rate savings goal, which we expect to reach by the end of 2018.

We expect to benefit from the startup of a new indirect purchasing system later this year. Our broader IT system refresh is performing well in the Grain Group and we plan to go live with the first wave of Plant Nutrient locations later this year. We also continue to vigorously promote our 0 harm safety culture and those efforts are paying dividends. In June, we recorded the first calendar month without 1 recordable injury, which is our best result in more than 30 years since we've been keeping records on this safety measurement.

I'm very proud of our team's improvement in safety. I'll speak later in the call about our outlook for the remainder of 2017. Now John Granato will walk you through a more detailed review of our financial results.

Thanks, Pat, and good morning, everyone. In the second quarter of 2017, the company reported a net loss attributable to The Andersons of $26.7 million or a loss of $0.94 per diluted share, an adjusted net income attributable to The Andersons of $15.3 million or $0.54 per diluted share and revenues of $1 billion. Adjusted results exclude the noncash goodwill impairment charge for the wholesale fertilizer business Pat discussed in his opening remarks. These adjusted results were 6% higher than in the second quarter of 2016, when our revenues of $1.1 billion generated net income of $14.4 million or $0.51 per diluted share.

The 2017 second quarter results also include $3.5 million in pretax charges associated with the company's exit from its retail business.

We next present bridge graphs that compare 2016 reported pretax income for 2017 adjusted pretax income year-over-year for the second quarter and first 6 months. The graphs reflect an adjustment for the $42 million noncash goodwill impairment charge.

I want to spend just a minute on the tax impact of the goodwill impairment charge. Because the impacted goodwill was acquired in connection with stock purchases, there was no tax basis in those assets. Thus, the goodwill impairment charge was not tax deductible. No tax benefit on such a large expense resulted in an unusual effective tax rate for this quarter and may result in an unusual series of effective tax rates for the rest of the year.

The next slide shows the changes in adjusted pretax income by segment for the same 2 periods. We significantly improved our Grain Group results in the second quarter. This was the third consecutive quarter marked by major improvement. Year-to-date, Grain results are more than $32 million better than for the same period last year. We experienced some second quarter setbacks in the other segments, notably in the Plant Nutrient business due to the conditions Pat described earlier, and in Retail due to our store closing. Rail's results lag last year's numbers, but the year-over-year variance in the second quarter was $2.6 million better than the first quarter's year-over-year variance, of note in the quarter with stronger base lease income, which was up by $2.3 million over the first quarter. The Ethanol Group's results for the quarter were lower than in the second quarter of 2016, but they were still better than last year at the halfway point.

Unallocated other net expenses were $1.7 million higher for the quarter, primarily due to a $1.3 million pension gain in 2016 that did not recur in 2017. On a positive note, these net expenses were $1 million lower through the first 6 months of 2017 compared to the first 6 months of 2016.

Now we'll move on to review each of our business units. Our Grain Group continued to improve year-over-year in the second quarter. The Group reported pretax income of $6.9 million, a nearly $20 million improvement over the pretax loss of $13 million in the same period of 2016. Solid grain merchandising efforts in all 3 commodities, corn, soybean and wheat, coupled with stronger storage income drove the group's performance.

Base Grain earned pretax income of $4.1 million in the second quarter compared to a pretax loss of $9.8 million for the second quarter in 2016. A nearly $14 million improvement well exceeds the nearly $10 million year-over-year improvement in Base Grain operating results we realized in the fourth quarter of 2016 and the first quarter of 2017. Grain affiliates, Lansing Trade Group and Thompsons Limited, also improved their year-over-year showing, combining for a pretax income of $2.8 million in the second quarter compared to a pretax loss of $3.2 million for the same period of 2016.

The Ethanol Group's performance fell short of their second quarter 2016 results due to lower average margins. The group earned second quarter pretax income attributable to the company of $4.7 million or $1.5 million less than the $6.2 million pretax income attributable to the company, the group reported in the second quarter of 2016. Margins were hampered by higher ethanol production and inventories. The group also continues to be negatively impacted by lower DDG margins due to both lower export demand in Eastern Corn Belt vomitoxin issues. We're pleased to note, however, vomitoxin issues abated somewhat during the quarter. The Plant Nutrient Group earned adjusted pretax income of $16.2 million in the second quarter compared to pretax income of $23.5 million in 2016 second quarter.

Base nutrient tons were down just under 3% year-over-year, and margins were down by 12%. Value-added volume was down by 12% and margins were down by 18% due to field applications this spring creating an oversupplied market. Following the $42 million noncash impairment charge taken in the second quarter, approximately $17 million of goodwill related to the wholesale fertilizer business remains. We will perform a regular annual goodwill impairment testing in the fourth quarter.

The Rail Group generated $5.9 million of pretax income in the second quarter compared to $6.6 million last year. Utilization rates averaged 84.4% for the quarter compared to 83.6% last quarter and 88.6% in 2016.

Average lease rates were flat year-over-year. Lower utilization was offset in part by lower maintenance costs that produced base leasing pretax income of $2.9 million, which was slightly higher than last year's result. The group recorded income from car sales of $1.4 million, down from the $2.3 million of pretax income earned from car sales in the second quarter of 2016.

We still expect income from car sales for the full year to be comparable to 2016 results. The group is actively managing the fleet by scrapping older, underutilized cars and taking advantage of higher scrap prices. The group's repair and fabrication businesses continued their strong performance, as they set a second consecutive quarterly record for pretax income. We closed retails -- remaining 4 retail stores, and exited the retail business in early June. During the quarter, the group incurred a $6.7 million loss that included $3.5 million in exit costs, mostly from employee separation expenses. Overall, we expect to record pretax charges near the midpoint of the $9 million to $14 million range we have communicated since we announced the closing.

I'll now turn the call back over to Pat for a few comments on our outlook for 2017. Pat?

Thanks, John. As we look forward to the rest of the year, we still expect our adjusted 2017 net income to be better than our 2016 results. The Grain group had a third consecutive significant year-over-year quarterly improvement, with mostly good crop conditions in our asset footprint dry areas. The balance of the year will likely show improved results compared to 2016.

As we expected, an excellent 2016 harvest has greatly improved 2017's base income year-to-date. We expect to continue to earn good space income through the 2017 harvest. And in addition, we expect to have ample merchandising opportunities as harvest approaches.

Lastly, corn and soybean crop conditions are reasonably good, with some spots in the West dealing with hotter and drier conditions. In the Eastern Corn Belt, the crop as a whole is in good condition. Large U.S. and global stocks and a good fall harvest will create continued space income opportunities for the group later this year and into 2018.

The Ethanol group is doing a good job driving production efficiency. All 4 plants are running well. In the second quarter, the industry outproduced demand, but in late July, margins began to rebound. Declining stocks, moderating corn prices, record exports, strong gasoline demand and a favorable 2018-proposed RVO are all good signs as we move forward. We expect the group's results to improve in the second half of the year.

Our Plant Nutrient group continues to be impacted by an unfavorable combination of oversupply, low prices and margins and an ultimate lower customer base that is making very conservative purchasing decisions. The fertilizer industry needs to move towards a supply and demand balance to stabilize prices, which should lead to more normal buying patterns. A good summer field program and fall application season would help improve our position. We continue to believe in this business and especially in the growing role that value-added nutrients play in sustainable agriculture.

Rail continues to be impacted by an oversupplied market. While there are some signs that we have seen the bottom of the downturn, the recovery of our utilization rates may be a little more gradual than we thought earlier in the year. On a more positive note, we've been able to make our fleet younger, buying almost 1,400 cars in the first half of the year and scrapping some older, underutilized cars, taking advantage of a higher scrap market. We'll continue to work on our productivity initiatives across the company. We feel confident about hitting our targeted additional $10 million of pretax run rate savings by the end of 2018.

We continue to put processes and disciplines in place that will make us a leaner and stronger organization.

I'm pleased to announce that Srikanth Dasari has agreed to join the company as our new Vice President and Treasurer. Srikanth brings extensive public company treasury experience to our team.

I'd also like to let you know that Bill Wolf, President of Plant Nutrient Group, has announced that he'll be retiring at the end of the year. We want to thank Bill for his 23 years of service to the Andersons and over 37 years of service to the agriculture industry. We've commenced an external search for the Plant Nutrient President role.

In closing, our 2017 company results to date were disappointing, while our Grain business has rebounded and our Ethanol and Rail groups are performing well. We look forward to stronger finish to 2017.

I'll now turn it over to our operator, who'll help us in receiving your questions.

(Operator Instructions) Our first question is from the line of Farha Aslam of Stephens.

My question is really focused on the Grain group. Just could you share with us the VSR, if it's still in place? And how long you expect that to stay in place?

Yes, good question, Farha. We have wheat harvest here acres, as you know, and wheat were down a little bit this year. We had pretty big global supplies of wheat. There's been some troubles in the Australian crop off late. But in general, we still have big burdensome stocks around the world. We did a good job in harvest in wheat this year. And it was a very good quality, soft white wheat crop, which we like to see. And so our bins are full. VSR has been, where the board is trading, keeping that 2-tick number in place. We feel it'll hold that 2-tick level, we don't see it probably going up to 3 nor do we see it dipping back to 1 for the near term.

That's helpful. And then you highlighted better space income. On a per bushel basis, could you just kind of share with us kind of the tick-up that you've seen in corn and wheat and soy. Just kind of more color on how much that's improved and how sustainable is that improvement?

Sure. So we -- probably it's hard to put a specific per penny bushel number on each commodity, but we have all of our space across all of our facilities as chock-a-block full, and we feel good about our positions going into the upcoming fall harvest. Spreads have widened across all 3 commodities, corn, wheat, beans, to get more close to full carry or at full carry. So we're taking advantage of that storage income, which is a good thing for us. We really had a good merchandising season for our team early in the year, where farmers sold beans when prices had spiked up, and we were able to merchandise those beans. And we kept storing wheat through that period. I think an important point to make here is, volatility is really important for us, as it is for everyone in the grain industry. And the market volatility in the second quarter really presented some nice opportunities for our farmer customers to get sales on at higher prices for corn and beans. So it's a greater illustration of how we bring value with our grain account representatives working with these customers kind of in a disciplined marketing plan to put in place contracts. And just a while back ago, when we did have the spike, $4 corn, we bought a lot of bushels on that day, and we were happy for our farmer customers who've been working with us on that.

That's helpful. And my final question is on the U.S. grain situation. So you have better conditions in the East, more difficult conditions out West for corn. Is that a benefit for the Andersons? Do you...

Yes. So we've seen unfortunately for farmers, and especially up in the high plains in the Curtis and similar to have these hot dry conditions, overall U.S. crop conditions in our appendix is actually not as good as last year at the same time. I think it shows 62% versus 74%. We're fortunate. And I've been driving a lot in our Eastern belt recently. We're in good shape. And we haven't had any really high temperatures to stress the crop in the East, and we've gotten pretty regular rains. As I look out the window right now, a thunderstorm on the horizon. So I'd say beans have really benefited from some rains. We're little bit wet in parts of Southern Illinois and Indiana early, which there's some replanting. But in general, I think, what you're saying is true. Having good crop conditions in the East is good for us. And the way we're different is even -- while we export out of the Great Lakes through Toledo, we're really domestic merchandiser to the Southeast and other regional markets for flour millers or poultry processors or ethanol players. And we feel very good in the position that, that crop will put us in as we go into next year.

Our next question is from Heather Jones of the Vertical Group.

So one detailed question because I think I didn't -- I don't think I know if I heard you correctly. John, in your remarks, I think you -- did you say that you think the Rail Group is going to put up similar numbers to last year on a full year basis?

We didn't say that. What we specifically referenced was sales from railcars. And we thought that would be similar. I can add a little color. To the full year, I think, we feel things are going well in rail. We have seen that turn in utilization, albeit very, very slow. So we do feel good about the second half of the year. I don't think we feel it's going to be a blowout. But we feel comfortable that it'll be in line to maybe slightly better than the first half of the year.

If I can add onto that, I think, on the strategic side, as we made it in our comments that adding to our fleet -- we've added 1,300 cars now with a younger on average car life, and then scrapping older cars is something strategically we've been trying to do by bringing little more youth to our fleet, and also the diversification of that fleet. We have 23,500 cars today. And there is some interesting shifts in demand. It's funny how things turn. Small cube hopper cars for frac sand are back in vogue. So -- and just a year ago, those were in oversupply. While some other areas, plastic which was quite hot has kind of come down a little. And grain could return this fall demand, if we have good crop. So general purpose cars, boxcars are steady. So the demand is okay. And we're starting to see a little life from what was a very quiet market 6, 9 months ago.

Okay, awesome. Fertilizer. So I understand the issues that are impacting that segment. But like when I'm -- we're thinking about the back half, and clearly there is a lot of variables, harvest importantly, weather, but assuming the weather cooperates and farmer apply at their normal times, given where margins are and given where demand for value-add is versus more basic, it sounds as if you think that the back half could be worse than the back half of '16 for fertilizer or -- I mean, how should we think about that?

Well, first of all, I think, you're right. If we look at kind of across the broad spectrum of base nutrients, we are at lows that we haven't seen in 10 to 15 years for some of these products. And in certain cases, look at ammonia 20-year lows or close to 20-year low. So there's really no silver bullet that we see to kind of raise the market conditions. We need demand and supply to come together and get a more disciplined market. Some specific factors that occurred last year, if you recall, we did have some charges in the back half of last year for the Plant Nutrient Group, overall. If you remember, we positioned our Cob Group specifically. So at this point based on what we know, I would say we don't see it being worse than the back half of last year, but we don't see really anything on the horizon that would improve it significantly. Obviously, we'll continue to look for opportunities to efficiently run that business in this economic environment. So that's kind of where we are, Heather. Anything more specific we can get into --

No, that's perfect. Vomitoxin, I know we're early, but I don't even know if you can tell right now. But if you can and you're assessing the state of the crop, and you mentioned that you haven't had any severe heat in the Eastern Corn Belt, is it your expectation that the vomitoxin issue should be better with the new crop for your plants?

Heather, I think if you look at historically here, vomitoxin that occurred in similar markets in the last year was unusual. Actually, the detector levels are better in the second quarter than were in the first quarter. I think it's because in harvest, we had to take some of higher levels that the farmer had to move at that time, and now the stuff that's been stored is in a little better condition. So we've abated a little bit the vomitoxin challenges we have, it's still there. And next year -- the crop in the East looks good. So if we continue this pace, we're optimistic that it'd be nice to have that behind us next year. It's a little thorn in our side last year, but it'd be nice to not have anymore.

And if I can just add, getting a little more granular, as we look at each of the 4 ethanol facilities, we're not seeing outstanding crops, but we are seeing good to average crops there. So we don't see any negative conditions around any of our facilities today as we look forward relative to corn supply or corn quality or conditions. So that's a positive.

And my final question is, one of your competitors reported earlier this week and there was some interesting commentary on that call regarding the possibility of processes that would enrich the protein content of DDGs, basically make them a much higher protein level. And he mentioned the concept of the ethanol industry running for protein as opposed to ethanol at some point. So my question is, is this a technology that you guys have considered for any of your plants? And if so, what are the implications from a profitability standpoint?

Heather, we're very well aware of these technologies and have looked at those extensively. And we have plans going forward we don't have any we can announce at this time. But you're right, there have been some great breakthroughs in the value-added feed technologies on the dry mill side. And when you look at markets that, where especially DDGs have been depressed and you move up the chain and you go to soybean meal value or higher, and aquaculture PET or other markets, of course, that's attractive. So something we're seriously interested and working on, but just nothing we can state at this time.

So you're -- did I misunderstand you? Are you saying that not only you could get to soy meal values, but you actually, in some instances, could get a higher premium because they will go into the aquaculture market?

Well, we have to crawl before we can walk. But I'm just not talking up the food chain of the feed ingredients market. I have had a lot of experience in that in my previous life. It takes a lot of acceptance, especially when you go to PET or aqua, which are very finicky customers. But the point is, there is technology and opportunities to add additional value to DDGs. It's not going to take up considerable capital too. So it's something we're extensively looking at right now, but it's nothing we've come public with announcement yet.

Okay. My last question on that because I'm just trying to think through implications here. What -- besides the considerable capital costs, what are the drawbacks? Like does it reduce your ethanol yield? Are you only able to apply it to a portion of DDGs in a plant? Or -- I mean, what are the gives and -- puts and takes of it?

I'm not sure I understood the structure of your question. But the point is, this is how you can separate the different parts of the corn kernel and get the most value in the right places. So it's really not something we can comment in detail at this time. But the point is, change or die in this industry, right? So you got to look at how we can optimize and create better value for our core products. And some markets and exports have been stunted. So we need to look for other avenues for our food products and ethanol.

Our next question is from Ken Zaslow of Bank of Montréal.

A couple questions. One is, how do think that the nutrients business fits within your portfolio? And do you think that it's something that you would think maybe of going the same way as the retail business, and you think you can actively seek to -- does it really fit in your portfolio when you need it?

It absolutely, fits, Ken. And I appreciate you asking the question. We really like the agricultural supply chain and starting at the farm, and plant nutrient business is a great extension of that supply chain. The long-term macros are still very positive. Demand for crop nutrients is going to continue to be robust. As we have this large production need for soil nutrients over time. Current fertilizer corn -- corn prices have been tougher and this hasn't had the economic incentive to the farmer to really apply additional fertilizers or invest more heavily in his crop. But over the long term with the need for precision ag and infertile applications and the next generation of nutrients, we really want to be part of that business. It fits very well with our grain business. And it's a nice fit for our farmer customers. And it's a good fit for our technology. We have a very successful lawn business, albeit small, but it's been very profitable, and we use lots of interesting technologies in that line of professional turf business have been quite successful. So we like it at the Andersons. It's a tough trough. We just took a big write-down here. We're not happy about the conditions we're in right now, but we're going to work like heck to get back up and make this a very strong business.

My second question is, a couple of your competitors talked in the ethanol industry about rationing capacity. You guys have actually not rationed, you guys have actually expanded. Can you talk about where you will range on being rational in your capacity in ethanol? Do you think that there is places where you can reduce your capacity or do continue to believe that you will expand? And if so, will it continue to keep the markets from actually making real profitability in the ethanol industry?

I understand the points you're making. Our Ethanol Group, I think does a very good job at what I'd call optimizing the bottom line result. And that's by tweaking run rates up and down and the inputs needed to create ethanol. And you can use higher price materials to make a higher-yielding time or you can move back down. And our guys have done a really good job of that. As you know, we got our Albion ethanol plant expanded this past year and that we have to look at each micro market. So in Michigan, there was surplus corn and deficit ethanol, that's a very good play for us and works out well. We're not looking to put on any big expansions or grainfeds at this time. But as I mentioned in my comments, there is still strong gas demand. There is strong ethanol exports and a favorable RVO and a good corn crop. Those are kind of the 4 bullets you need to be successful in ethanol. And we like the position of the ethanol industry. Margins weren't as good this first half of the year as we would have liked. And there is this price volume relationship that needs to be in balance, as you mentioned, to kind of make it more profitable.

My final question is, with the point of obligation no longer being an issue, how quickly do you think E15 infrastructure could be built? And what will be the impact of that over the next 6, 12 and 18 months?

Yes. I agree with you, but I think it's going to be slow. Anytime when you talk about legislation and adoption and let alone physical adoption, capital that has to come into place in the supply chain and the fuel system, it always takes a little longer than we would like. We're optimistic long term. But I don't know, if it's going to come really fast as far as adoption.

Our next question is from Eric Larson of Buckingham Research.

Pat, you talked -- we've seen a recovery, obviously, in the Grain business. Obviously, 3 really good, but kind of back-to-back quarters. I thought your second quarter was really good, better than I would've expected. But we did see -- in my opinion, we did see the basis spread continue to be fairly attractive in the month of July. So we did see that continue into the third quarter. Is that something you saw as well? And is that part of your enthusiasm for kind of continued recovery here Q3 and Q4?

Yes, I mean, just it's -- quite simply that we like the merchandising opportunities we've had this last year. As you mentioned, with widening of the spreads, it allowed for enhanced storage income, which is good for us. John correct me, earlier when I said our bins were full, obviously, we have brown piles from last harvest that are picked up and gone, so those aren't full. But in general, we've had -- we like to see some volatility in the markets. Unfortunately for our farmer customers, this had been a slow drive down here on prices here, of late, in the last month or so. We're happy for those who worked with us on having good marketing programs. And we took good advantage of that when the market spiked. Now it's kind of a U.S. finish to weather market right now, so we just kind of have to see how crop conditions play out going into harvest.

I would just -- the only other thing I'd add is, as we look overseas a little bit and the large crops, and we know that in Brazil, the farmer is still holding a fair amount of crop. I mean, given, where we're positioned in the Eastern Corn Belt and the way we play, I mean that, that along with a good harvest here in the fall should continue to benefit us.

The Brazil production alone we're talking 95 million tons of corn and 107 million tons of beans. In Argentina, 57 million tons. So the market has paid a lot of attention with what's happening in South America and the Real dollar spread. So it's interesting how the export market is going to fight for corn and feed grains around the world this year.

It definitely will, and that was one of my questions. Obviously, it looks like the Brazilians are holding their beans, they're selling their corn that it is going to pressure our U.S. export markets. How is domestic demand in the U.S., and specifically in the Eastern Corn Belt, because you do service more to the Southeast. How has your demand held up? And, I guess, that's really a key question as well?

I think demand has been good, and I'd call this normal. Again, flour mills for wheat and crushers for beans and poultry and ethanol for corn. We had a big crop, where a lot of people were able to a get good ample supplies at harvest time. The market is telling us to store grain and not sell it. So that's what we're doing because it tells you, hanging on to it's better than pushing them out the door right now. It's going to be interesting to see how we get in closer to harvest time as crops get better and grains are going to have to move. It's also interesting to watch how South American grain can price into the Southeast for example. So there's a lot of different market signals right now. And there's some volatility out there. I think that's good for us and creates volatility and helps us with trading spreads and cash merchandising.

Yes, and I'll agree. The final question I have. In the follow-on season here for your liquids, your micros per se, have you seen a lot of side dressing. This -- in the month of July, absolutely, crops are submerged. Did you see much in that. And then I think the other overriding question I have is, obviously, we know what the cost of micros in full years in your low-salt starters. Are they expensive? Is there a level of corn or bean prices that you guys use that generates farmer income so they will kind of move back toward these higher-margin liquid fertilizers?

Well, we do, do analytics. We don't share those. Obviously, Pat referenced that we've done a fairly detailed study of the value-add space. And when we talk about slower adoption rates, that's clearly correlated with farmer incomes as well as the current corn price. As those prices rise, obviously, the value of the products to the farmer also increases. The thing that I would note is that in our analysis, the efficacy of the products, i.e., do they work, and does the farmer believe that they work and add value, that has not been questioned for the most part. And so we do need slightly higher corn prices and the higher farmer incomes to drive, what I would call, a more accelerated demand. We do still believe that those higher value-added products will have a faster growth rate than base nutrients, particularly as you think about sustainable agriculture and the ability really to get the nutrient where it needs to be in a very efficient way.

Yes, that's why I asked the question. Because when you referred that you had done your work, we have to -- I tried, at least, right? I asked the question, we'll maybe a compared notes at some point. I have a few points on that.

We did an extensive market survey talking to a significant number of farmers. And then, as John said, the efficacy is real. They know the future around precision ag. They're going to be focused on new products and how they can increase the production, and next-generation nutrients are going to be part of that. As you mentioned, infertile, our special new micros and our low salts have been successfully adopted by major farmers out there. The challenges is a total bottom line for them. They have tight balance sheets, foreign incomes have not been great. So it does -- it kind of pushes that out a little bit. We still like it. We think it's a good business to invest in, but maybe just not in a dip of market timing, it is not as delighting to the farmers that would be in a higher price environment.

And that does conclude our Q&A session for today. I'd like to turn the call back over to you, John Kraus, for any further remarks.

Thanks, Christie. We want to thank you all for joining us this morning. I also want to mention, again, that this presentation and slides with additional supporting information will be made available later today on the Investors page of our website at andersonsinc.com.

Our next earnings conference call is scheduled for Tuesday, November 7, 2017 at 11:00 a.m. Eastern, when we will review our third quarter results. We hope you're able to join us again at that time. Until then, be well.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. And you may all disconnect. Everyone, have a good day.