Darling Ingredients Inc (DAR) 2013 Q1 法說會逐字稿

Good morning everyone, and welcome to the Darling International conference call, to discuss the Company's first quarter, 2013 financial results. With us today are Mr. Randall C Stuewe, Chairman and Chief Executive Officer of Darling International. And Mr Colin Stevenson, Executive Vice President and Chief Financial Officer. After the speaker's opening remarks there will be a Q&A period, and instructions to ask a questions will be given at that time. This call is being recorded and your participation implies content to our recording this call. If you do not agree to these terms, simply drop off the line. I would now like to turn the call over to Mrs. Melissa Gaither, Director of Investor Relations, for Darling International. Please go ahead ma'am.

Thank you Amy. Good morning, thank you for joining us to review Darling's first quarter, 2013 earnings results. Randy Stuewe, Our Chairman and CEO will begin today's call with an overview of our first quarter operating performance, and discuss some of the trends that impacted our results. Colin Stevenson, Executive Vice President and Chief Financial Officer, will then provide you with additional details about our financial results. Randy will conclude the prepared portion of the call with some general remarks about the business, after which time we will be happy to answer questions.

Before we begin I need to remind everyone that this conference call will contain certain forward-looking statements regarding the business operations of Darling, and the industry in which it operates. These statements are defined -- identified by words such as may, will, begin, look forward, expect, believe, intend, anticipate, should, estimate, continue, momentum and other words referring to events to occur in the future. These statements reflect Darling's current view of future events and are based on its assessment of and are subject to a variety of risks and uncertainties beyond its control. Including disturbances in world financial, credit, commodity, stock markets and climatic conditions. A decline in consumer confidence and discretionary spending, the general performance of the US and global economies, global demands for biofuels and grain and oilseed commodities, which have exhibited volatility and can impact the cost of beef for cattle, hogs and poultry, thus affecting available rendering feed stocks. Risks including future expenditures relating to Darling's joint venture with Valero Energy Corporation to construct and complete a renewable diesel plant in Norco, Louisiana. And possible difficulties completing and obtaining operational viability with the plant on a timely bases or at all. Risks related to possible third-party claims of intellectual property infringement, risk associated with the development of competitive resources of alternative, renewable diesel, or comparable fuels. Challenges associated with the Company's ongoing enterprise resource planning project, economic disruptions resulting from the European debt crisis. And continued or escalated conflict in the Middle East, North Korea or elsewhere. Each of which could cause actual results to differ materially from those projected in such forward-looking statements. Other risks and uncertainties regarding Darling, this business, and the industry in which it operates are referenced from time to time in the Company's filings with the Security and Exchange Commission. Darling is under no obligation to and expressly disclaims any such obligations to update or alter its forward-looking statements. Whether as a result of new information, future events or otherwise, with that I would now like to turn the call over to Randy.

Thanks Melissa, and good morning everyone thanks for joining us. It's my pleasure to welcome you to the Darling International's earnings call to discuss our financial results for the Company's first quarter, that ended on March 30. Our first quarter operating performance marks a solid start to 2013, one that strategically sets the stage for upcoming commissioning of our Diamond Green Diesel plant, which I'll discuss later in more detail. And overall improved and less volatile pricing environment, coupled with steady raw material volumes, led to a net income of $32.4 million or $0.27 a share, a 15.1% increase versus year over year first quarter.

So let's put a little color around our performance. Fat prices recovered nicely from the fourth quarter 2012 but it still were down 4% year over year. Protein markets improved year over year, but basically remained flat sequentially. We saw strong demand for our value added poultry proteins lead the way.

Meat and bone meal prices improved despite the continued closure of the Indonesian market. Our value added protein price strength was primarily driven by tight global supplies of soybeans, and a strong fishmeal market. The improved fat prices were largely driven by the ramp-up in biofuel demand, as the RFS2 mandate begins another fulfillment cycle. Exports of fats remain sluggish at best, and ultimately the market is awaiting the start up of our Diamond Green Diesel facility and the new demand it will create.

Let's take a look at how volumes played out during the quarter. To meet increased domestic and export demand, poultry and pork suppliers increased slaughter and processing rates driving higher raw material volumes relative to the first quarter, 2012 and sequentially from our fourth quarter. As we anticipated, beef raw material tonnage pulled back due to a combination of poor slaughter economics, and sluggish demand as a consumer chooses a more economical protein. We anticipate, that due to tight cattle supplies, this trend will continue to weigh on our business through much of 2013. Additionally, the mild winter led to lower dead stock volumes. We are also monitoring a new strain of bird flu referred to H7N9 in humans reported in China at the end of the first quarter. This could impact the poultry industry both here and abroad.

Our bakery [business] and the business segment contributed nicely during the first quarter 2013, with higher finished product prices for cooking meal, tracking the higher corn prices. Volumes reflected a more normalized production situation, within the bakery industry, versus the start of 2012.

Now turning to Diamond Green Diesel. Construction is nearly complete and we are at the early stages of a phased commissioning of our new joint venture with Valero. Rail unloading, our tank farm, wastewater treatment and our pre treatment system are all in the commissioning phase. The ecofinder unit, the heart and soul of the facility is nearing construction completion, and will begin a rigorous commissioning shortly. We anticipate a late second quarter start up, and barring any unforeseen issues, full production during the third quarter. We always like to give you a pro forma snapshot of this perspective, so if Diamond Green Diesel had been operating at planned capacity in first quarter, based on our average raw material cost, and finished product prices for the quarter, and operating at nameplate capacity, earnings per share would have been approximately 10% higher -- $0.10 a share higher. As a reminder, the facility will consume about 1.2 billion pounds of fat and produce about 137 million gallons of renewable diesel, when operating at nameplate capacity. Valero's construction and Darling's operations team has done a fantastic job in bringing construction to completion, with an excellent safety record and we are very excited to see commissioning commence.

With that, I would like to turn the call over to Colin to give us a brief financial review. After Colin concludes, I will come back and provide some closing comments and then we will open it up to Q&A. Colin?

Thanks Randy. For the 2013, first quarter, the Company reported net sales of $445.4 million, compared to $387.1 million in the year ago period. The $58.3 million increase in sales, primarily resulted from higher selling prices for our finished products and higher raw material volumes. As Randy mentioned, on a year over year basis, protein prices increased significantly which more than offset a 4% decline in fat prices. Net income for the fiscal 2013 first quarter increased to $32.4 million, or $0.27 per share on a fully diluted basis. As compared to net income of $28.6 million, or $0.24 per share for the 2012 comparable period. As noted in our press release, the $3.8 million increase in net income for the first quarter resulted primarily from higher finished product prices, followed by higher raw material volumes. At the segment level, rendering generated net sales of $367.2 million for the first quarter, 2013, as compared to $322.3 million in the first quarter, 2012.

Bakery segment sales contributed $78.2 million of the first quarter, compared to $64.8 million in the year ago period. These increases are primarily due to higher commodity market prices, and improved volumes during the quarter. Our aggregate expenses for depreciation and SG&A increased in the 2013, first quarter compared to our prior years first quarter expenses. The SG&A increase reflects plan for additions in payroll to grow our used cooking oil business, as well as support our new ERP platform, and the rationalization of our benefits and incentive compensation plans for the former Griffin employees. The increase in depreciation expense was primarily due to a general increase in capital expenditures.

Interest expense was $5.6 million for the 2013, first quarter compared to $6.9 million in the year ago quarter, a decrease of $1.3 million. Primarily due to a decrease in debt outstanding as a result of a prior year payoff of the Company's term debt facilities, and a reduction in deferred loan and cost write-offs of approximately $0.7 million when compared to the same period in fiscal 2012. Other income was $1.1 million in the first quarter, 2013 compared to an expense of $0.6 million in the first quarter 2012. The increase is primarily due to insurance recoveries on a prior year fire loss, received in the 2013, first quarter compared to no such proceeds in the year ago period. Relative to the Company's investment in our joint venture with Valero on the balance sheet, we reported an investment of $73.8 million at March 30, 2013, as compared to $62.5 million on December 29, 2012. On the statement of operations, we reported a net loss of $1.2 million for the first quarter, 2013. This loss is largely due to non- capitalized expenses, as we finish out the construction phase.

Let me provide some additional balance sheet detail. On March 30, 2013, the Company had working capital of $190.8 million, and its working capital ratio was 2.56 to 1, compared to working capital of $158.6 million, and a working capital ratio of 2.2 to 1, on December 29, 2012. The increase in working capital is primarily due to the increase in cash, and a reduction in accrued expenses. At March 30, 2013, the Company had unrestricted cash of $121.8 million, and funds available under the revolving credit facility of $384.9 million, compared to unrestricted cash of $103.2 million. And funds available under the revolving credit facility at $384.9 million at December 29, 2012. During the first quarter, 2013, the Company incurred capital expenditures of $26.4 million, as compared to $24.7 million, in the 2012, first quarter, for a net increase of $1.7 million. Additionally, included in our capital expenditures, are costs associated with the implementation of our new ERP system, which is expected to be phased in over the next two years. I will now turn the call back over to Randy.

Thanks Colin. We ended the first quarter with strong results, carrying some pretty good momentum into the second quarter. However, we cannot ignore the anticipated improvements in the global supplies of grains and oilseeds, that will be felt later in the year. For now, fat prices are steady and poised to move higher with strong biofuel demand. Protein prices may flatten somewhat, as we transition from pet food to aquaculture, and summer feeding programs. Raw material input seemed to be steady with our used cooking oil business showing some signs of improvement. Our balance sheet and capital structure is solid, we have a healthy cash position, and we continue to look for opportunities to grow. Our platform is built and we look forward to delivering solid results, with the addition of Diamond Green Diesel. With that, I would like to now open it up to questions and answers please. Q&A operator please.

(Operator Instructions)

John Quealy, Canaccord.

This is Chip Moore for John. Randy, for DGD, as you get close to putting the final touches on the Ecofining unit, what exactly needs to be done or tested before the plant fires up?

The construction phase is in the 97%, 98% complete here, so we expect all the construction to finish up here in the next couple of weeks. We are in the final phases of steam tracing, and insulating, and doing all of those things. The pre treatment facility is in the early stages of commissioning the equipment right now and getting material through it. So, somewhere here in the next couple of weeks we will be start to -- towards the end of the month, start commissioning the Ecofining, there is nothing major left there, Chip.

Okay, and once you get it up and running, is there opportunity to accelerate production here with RINs prices being strong?

It's painful sitting here watching it not run right now. I know the team will do everything they can to get it up as quick as possible.

Okay and then just lastly, what should we be thinking for in terms of timeframe once you get this ramped up and running in terms of capital deployment, next steps and then just the related question, how is the M&A environment, is it still pretty competitive out there?

Essentially, our commitment into the facility, as Colin said, I think we have almost $74 million in there. The Valero team has done a pretty marvelous job of slowly paying off some of the suppliers here, so you will see that ramp up with probably another $20 million to $30 million going out the door here in the next 45 to 60 days. So you will end up with $105 million, $110 million when that's all said and done. We are still on a pretty significant cash build mode here right now. So, the M&A environment seems to have some life out there but nothing imminent at this time.

Thanks a lot.

Dan Maness, Avondale.

Randy, I don't mean to be glib but if there were something imminent on the M&A front, would you tell us?

Of course not, Dan, you know that.

So, real quick, first I was going through your 10-Q and I noticed -- and this is in conjunction with your commentary on the potential for rising supplies of corn -- it looked like you did put in some hedges for your bakery business through corn. Can you talk a little bit about maybe where you are hedged at for the balance of the year, and how much protection you have been able to put in?

Well, what we have done there, Dan, is obviously the trick for us -- or that is one of those businesses that has exposure to corn. You buy it off of corn and you sell it off of corn, off of tract Central Illinois. When you look at the tools and the market for the derivatives available, what we have done is collared the margin exposure in that business for the balance of the year here. That is about as deep as I would like to go into it, but it's approximately about 75% of the business has -- we've locked the margin in for the balance of the year at what I would say is pretty close to current levels.

When you say current levels, current future levels or spot levels?

Current margin run rates. Obviously the market is inverted so the back half of that has got a little less than the front half, but we've had a view here that the grain crops, aside from being a little wet right now, will get planted and there could be some pressure on the back end of this thing a little bit.

Anything for '14 or just for 2H '13?

Our program right now involves rolling the hedges forward at least through first quarter to the point where we understand both the size of the crop and the view of the world going forward.

Got it. Real quickly on Diamond Green, the $0.10 number, it sounds like that is up a little bit. Can you maybe just walk us through the components of the $0.10 right now? I know in the past you have kind of done a bit of a walk-through on how that earnings plays out between your view -- or where diesel RINs and the tax credit kind of played out in the quarter?

Dan, this is Colin. I will take a quick walk through that for Randy. As you know in the past what we have presented is our analysis which really starts with Gulf Wholesale Number 2 diesel and then we add the RIN value into that and the bio diesel tax credit, which right now which is $1 per gallon.

And you are getting the full amount? That would all accrue to you -- to DGD?

It would. So we factor that into our per gallon price. As we have also disclosed in the past, we have had some byproducts which produce somewhere around $0.31 to $0.32 per gallon, for naphtha, propane and butane. And that drives our total per gallon price. We then look at the feedstock cost. As you know, we have a variety of feedstocks that can feed into this including used cooking oil, inedible corn oil or distillers corn oil, poultry fat, tallow, et cetera. And we look at a blend of that to come up to an average feedstock cost basis. It is about 8.3 pounds of feedstock to produce 1 gallon of renewable diesel. So that gets our feedstock cost. As we've disclosed in the past our estimated production cost is around $0.38 per gallon, and then we layer in $0.07 for transportation cost.

Got it. So I guess, and can you say what your average RIN price was in the quarter? Because RINs have obviously been trading up pretty meaningfully, I had actually thought it might even be a little bit more than $0.10 for the quarter.

We use $0.64, Dan. You are right, it has been moving around here pretty rapidly.

Okay great. And then the last thing I was going to ask is on DGD, just in terms of the timing, I think you had mentioned before maybe the pre treatment as one of the earlier things you would commission. Can you talk about a little bit how that has been performing during commissioning or is it too early to talk about that?

Too early. It is in the early phases, we have moved from a complete hydro-treat now over to a running some fat through it. And obviously it is a very mechanical piece of equipment down there. Lots of tanks and centrifuges and bleaching filters. So they continue to make progress every day and really if there was an artsy form of what has to feed the hydro-treater is pretty much temperature and pressure system. This is where the Valero guys have to learn how to run a vegetable oil refinery much as we have experience at Darling and our prior backgrounds into agriculture here; it's fairly new for them. So, we wanted to bring that up 2 to 3 weeks, to 30 days earlier here so they would have a chance to run, and right now at this time it is performing as expected.

Sounds great, thanks, Randy.

William Bremer, Maxim Group.

Good morning, nice quarter, and thanks for the color, Randy, on DG. Really and truly, as we go into the balance of the year, good commentary regarding the underlying volume and prices. With the forward market specifically in corn, and the color that you have on the bakery being hedged, how is your long-term strategy going to develop there?

I think number one as we have always said that the rendering side of the -- the fat and bone side of the business, 70%, 75% of that is on a formula. A significant portion of our restaurant services or cooking oil business is on formula, the bakery business we talked about being hedged. There is no ignoring the Chicago Board of Trade and the inverse with December corn off $1.25, $1.50 from the front end here from $7 down to $5.50. That will have any impact on it. As we have talked about the combination and the development of our business model, the belief that we have had is that Diamond Green Diesel would take the fat component, which when you do break out our formula business, is the one we have the most exposure on, and provide some footing for that market not to totally track or to decouple its relationship with a falling corn market. Protein, if you look at the soybean meal market, it is down to -- it's pretty flat at $345 a ton when you get out towards new crop and forward. We are going to see some fall off there in the protein prices.

There is two parts of protein in this Company. There is the meat and bone meal off the ruminant side; it will track with soybean meal and some relationship as it always has. The value added poultry proteins are more driven by what happens in the pet food market and the aquaculture market. We're in that transition time as we said between where the pet food pack slows down and the aquaculture market starts to pick up. And so we're right in there, we've got a little softness happening right now. That should provide some support there. Going forward, this is going to be a really fun test of the model that we have built going forward. We are out of the block strong, and we should carry forward.

Obviously the inverse here, through second quarter, and then third quarter could get a little bit interesting here depending on how much of the crop they get in the ground. What is important there is it is still very wet and is supposed to be very cold and some parts again in early next week and then it is supposed to dry out. The farmer has proven time over time with the size of equipment they use now that they can get that crop in, in a much shorter period than ever before. But what it ultimately means is with tight supplies this year in the bins, you're not going to get the early crop off that you were. So we think this thing will roll forward a little bit further before it may come off sharply here or potentially as the world starts to recognize the larger supplies of feed grains and oil seed, so I think we are pretty well positioned going into it.

Good color, Randy, thank you. And then one just for Colin, a little housekeeping in terms of the corporate expense line. You called out that a little firming up of the Griffin acquisition there, can you give some guidance in terms of the corporate expense line going forward?

Yes, a big piece of that was with the Griffin organization and their incentive comp plans and their benefits plans, getting those coordinated and rationalized onto the Darling plan, that was part of the number that you saw in Q1.

Okay, can you share what was sort of like a one timer there and give us sort of a run rate going forward?

Bill, that is not a one timer.

It was an alignment of making all the employee programs fair and balanced between the two Companies. What you see is pretty much an ongoing run rate now.

Okay, thanks, gentlemen.

Farha Aslam, Stephens.

In your base business your volumes outperformed our expectations, could you just provide some color on what -- if you had anything notable to drive volumes?

I wouldn't say that there was anything -- I think number one, let's break it between rendering and bakery. Bakery was clearly, if you rewind the movie, a year ago today, we were sitting here dumbfounded with about a 10% maybe greater falloff in bakery volume from a year ago. Maybe it was 5% to 10% from year-over-year down from where we anticipated to be in 2012. So that came back so that was pretty -- as I say, it was pretty steady to fourth quarter. Rendering, the fat and bone side was pretty much where we thought it would, we had pretty good poultry numbers in there. The beef side ran a little strong and then it backed off pretty sharply as the per head economics got pretty red there. Really as I said, no dead stock in there, it was a pretty mild winter per se, lots of snow but not the really the super cold temperatures.

The used cooking oil business, we have seen a nice uptick in that, and that is probably a combination of programs that we've got going on there that Brian Griffin's group that hits the streets out there is doing a really nice job working with the customers, and there is some growth in there. Our theft prevention team is finally making some headways there and we are getting some help from both the state and the federal government in a couple of places to shut down theft. So really at the end of the day, poultry was strong, beef was a little weaker and starting to show trends of weakness, bakery was up year-over-year and cooking oil showed some signs of life. It seems to be carrying forward here, Farha, right now. So, I still think I am kind of -- you are the protein expert here. I think that cattle side could have some interesting volume or lower volumes here as we get to the September, October, November timeframe.

That's helpful. And then just on Diamond Green Diesel, when do you start filling up those tanks and taking in product?

They are pretty darn -- you know we have been quietly filling those tanks in front of your eyes here since December. So we were quietly, as the market dipped down we used the storage capacity down there so Clay has been building a really nice pipeline down there. We have not put into play yet, it is only starting to ramp up the full, turning the spigot on if you will, turning the Darling system towards Diamond Green Diesel and then some of the outside purchases there. One of the things we did was you saw us last summer acquire a facility in central Iowa or southeast Iowa, Muscatine, Iowa. Muscatine, Iowa was set up as a terminal with some pretty significant storage up there to source and supply corn oil to the Gulf. That has been well underway, so it has quietly been happening in front of your eyes and that might be why the fat market started to show some signs of improvement in the first quarter.

Do you anticipate as Diamond Green Diesel starts getting up and running, for it to be supportive to fat's prices or do you anticipate fat's prices to tick up from current levels?

That would be -- there seems to be a little bit of a Harvard business study going on and a debate in-house on that. There is split beliefs around here. One, we think that there is adequate -- one belief is that we think there is adequate corn oil supplies now in the market to offset that new demand point. My argument though is that I get to sit on this side of the table -- my argument with that is, is that's already known in the market and that is priced in the market but yet we have not turned on the machine that has to unload 18 to 20 cars a day, starting here shortly. I think, worst case it's supportive and we will see where it goes from there.

Great. Thank you so much.

JinMing Liu, Ardour Capital.

You mentioned that you saw some improvement in yellow grease during the first quarter, can you share more details with us?

Can I share what?

The details of how improvement in the yellow grease sales in the first quarter.

When I refer to improvement, it seems to be a reduction in the decline that we have been seeing. So, for us I think that we use the word around here, I think we've seen bottom. We have started to add some new accounts around the country. We are deploying different types of equipment out there now that deter theft. We have got a very solid program of putting indoor units into some of our key accounts. So, it is not a giant increase JinMing, but I am seeing numbers come back that I haven't seen. Volumes up 2%, 3% or 4% from where they were. We are hoping it is a trend but in the world of statistics it is only one dot on the line right now.

Okay. Got that. Switch to Diamond Green, the renewable facility, it seems like you will outsource some of the raw material and how do you control the quality if you outsource some of the raw material?

That is a really good question. There has been, for the last two years, a very extensive laboratory and supplier approval process underway. We have used Texas A&M extensively to analyze potential suppliers, probably 60 to 75 different supply points around the country. Some work, some don't work and some work a little better than others. And so, that is what we would consider to be very confidential to the facility. I anticipate that the Darling system will supply somewhere between 50% and 70% of the volume to it, and then from there it will be outsourced to whatever is the most favorable feedstock, both in the form of quality and price.

Okay, got that, thanks.

(Operator Instructions)

Ken Zaslow, Bank of Montreal.

On the spread between the poultry for pet food, that spread has actually been very, very strong of late, it has come down a little bit, but can you talk about what you are thinking about for the future on this? Is there a demand shift that's keeping this level? Is there -- just give us an outlook of what you're thinking about that spread.

I think -- well said, you have picked up on it, you are a student of the business. While we spend time referring to pricing in our analysis here relative to trade publications and Jacobson, the cash prices of the poultry proteins or the spreads over typical feed grade, did widen out, and supplies were very tight in the first quarter. There was a strong pet food demand repack or pack, or whatever, a retail pack that went on here. It would seem that the pet food guys both here and abroad seem to have an insatiable appetite for chicken products right now. Part of that is driven off of the tight soybean meal supplies around the world, the tight fishmeal prices, but overall I see it softening here just a little bit from a retail perspective which it typically does, more seasonality driven. We run a chicken parts business that makes chicken meal, that has done very well.

At the end of the day, chicken is king right now. Our facilities are running full and the demand is very good. Feather meal spiked up pretty good in first quarter, has come off a little bit. The pet grade poultry products spiked up very nicely, quite a bit higher than what the trade sheet showed momentarily just on spot demand, not what I call normal demand there, and have more than normalized now. So, I see it pretty good going forward, Ken, I don't see anything out there that changes it to go higher or anything supply side that would push it lower. If you are bullish, egg sets and increased poultry, slaughter, there may be a little bit of pressure but it seems that especially with the tight fishmeal supplies, and the aquaculture side coming on, that should, to say it bluntly, we have had more visitors from China from the aquaculture side this year than last year. So, I think that we will see some pretty good support there.

My follow-up question, in terms of the cash flow, you guys have been talking about acquisitions for some time. Is there a tipping point of saying of look, there really may not be acquisitions coming to the market and maybe we need to deploy our cash some other way? Can you talk about the time period for which you make that decision and what you would do with it?

I think obviously to openly talk about M&A is very difficult, so I try not to. There are opportunities out there, it is the start of a new year, there's always opportunities. Whether or not they will be priced at a level that is reasonable and something we think that is sustainable and accretive to our shareholders, that's another discussion. I think from our perspective, we have, as we have said all along, we want to get Diamond Green Diesel up and running, and make sure that there isn't any significant capital that would be required there to either finish it out, tweak it, make it work, it doesn't appear that there is at this time. So we've got a pretty large war chest. Plan B is, see if we can deploy that capital in the M&A markets to something that makes sense, and then the final piece is if we are unsuccessful in that during what I would say is probably second quarter here, and Diamond Green Diesel is up and running, then the board has a decision to deploy the capital back to the shareholders either in the form of a buyback or some type of ongoing meaningful dividend. Both are under discussion. They have been prioritized as I've discussed, and so if nothing happens here that we can grow the Company in a sense that the shareholders will benefit from the amount of cash that the Company continues to throw off.

Great, thank you very much.

Tyson Bauer, KC Capital.

In regards on the RIN situation obviously we have the increased mandate levels this year. With the tax credit we would expect those producers to have a little stronger carry out going into next year given the uncertainty of that tax credit. Along with the Brazilian movements they have done with their sugar cane ethanol, keeping that supply in country as opposed to exporting here, what are you looking at as a true volume consumption level here in the US as we get through the remainder of this year? And then also if that continues to be the case where we are filling a lot of those D5 requirements and that capacity, where do you see that going forward? Are we going to be stabilized and growing that mandate level as we get into August, September and going forth?

Yes, I think if you take the current RIN rate and you can make some assumptions out there with us coming online, this thing at least in the D4 bucket looks pretty strong through late fall, October, November. From there, given as you highlighted, the sugarcane side, the D5 bucket becomes a bucket then that we would move over to, so I don't see the cliff or the falloff that we saw last year on fulfillment. Obviously we are trying to come up with what the '14 volume is. We are anxious for that number to be published and finalized and we are hopeful that it is a minimum of 1.6 billion gallons. So, I think we remain optimistic. Obviously we are focused on today, which is get it up and running and make as much money as you can today but, I think internally we feel that we have got a good year, year and a half ahead of us coming here without any issue.

Obviously the change in the ethanol RINs and what has happened there with the blend wall, is something that, we always say, we give you the good and the not so good. The not so good is, is that obviously the ethanol side is paying a whole lot for RINs right now when you go from $0.03 to $0.60 to $0.80 to $1, whatever the number is moving around, that clearly starts to make that material to our partners in the petroleum industry and so at the end of the day they have got some issues to work out there to make sure that RFS doesn't glean any more political attention than it rightly deserves. I think we are fairly optimistic that will work out for now. Right now I think we've got a pretty good year, year and a half ahead of us.

Randy, your comments, are you suggesting that we may see a more muted barbecue season than our normal spike up in slaughter volumes due to the freezer volumes that are already in place? We may see that a little bit muted this year so we're not expecting that little bump we've gotten in years past?

Yes, it seems like it is starting out a little slower, freezer volumes. You've pegged it, I just think it will be a delayed barbeque season here if you will, but at the end of the day it is kind of hard from a consumers perspective. Beef is really expensive right now, we love beef, but at the end of the day the consumer is going to make the choice of what protein they are going to buy and usually it is very well chosen off of price. I think you will see -- you've got the egg set prices were ticking up, you've got some capacity being tweaked in the poultry industry out there, I think you will start to see that pick up here in the second half of the quarter here.

Since you mentioned fishmeal and that's kind of my wheelhouse, we've seen record prices, $1,800, $2,000 per metric ton, Norway has opened up for inclusion rates up to 40% for low ash poultry. It's a fast growing marketplace, especially for what you have the offer. What kind of price relationships do you have with the low-level or average quality fishmeal?

It is a per unit protein and then digestibility conversion. You have already answered most of your question there, you are seeing what's going on around the world. You aren't seeing though the other side of it, you are seeing moderate re-increased fishing quotas put in place to offset that, but near-term it sure feels that the aquaculture market is going to come back to these low ash poultry meals here pretty sharply this summer.

And the last question, any update on the Florida and your technology developments there?

Still, we've got some modifications. The plant has been running on and off on doing test commissioning. Late summer, midsummer, June, July we expect to have it commissioned and running continuous with the installation of some additional equipment. We will keep you posted there.

Thank you, gentlemen.

This concludes our question and answer session. I would like to turn the conference back over for Mr. Stuewe for any closing remarks.

All right, I want to thank everybody for joining us today. I think we are off to a pretty good start into second quarter here and we will obviously talk to you in August with the results of second quarter and keep you updated if we need to relative to the commissioning of Diamond Green Diesel. With that, thank you so much and we will talk to you later.

The conference is now concluded, thank you for attending today's presentation, you may now disconnect.